50791149 igcse study guide for business studies

Endorsed by University of Cambridge

International Examinations

C onte nts Introduction IV

Unit 1 The purpose of business activity 1

Unit 2 Types of business activity 5

Unit 3 Forms of business organisation 10

Unit 4 Government and economic influences on business 14

Unit 5 Other external influences on business 19

Unit 6 Business costs and revenue 23

Unit 7 Business accounting 27

Unit 8 Cash flow planning 32

Unit 9 Financing business activity 36

Unit 10 Organisational structure 41

Unit 11 Managing a business 45

Unit 12 Comn1unication in business 49

Unit 13 Motivation at work 52

Unit 14 Recruitment, training and human resources 56

Unit 15 Employee and employer associations 60

Unit 16 The 1narket and n1arketing 64

Unit 17 Market research 67

Unit 18 Presentation of information 70

Unit 19 The n1arketing mix: product and packaging 72

Unit 20 The marketing mix: price 76

Unit 21 The marketing n1ix : promotion 79

Unit 22 The marketing mix: place 83

Unit 23 Factors affecting production 87

Unit 24 Factors affecting location 91

Unit 25 Business in the international con1n1unity 95

Answers 99

Index 110

iii.

Int rodu ct i on

How to use the study guide This text has pritnarily been written to support students in their study of Business Studies to IGCSE. It has been designed to complement the IGCSE Business Studies textbook (Barrington and Stimpson) . The units in this guide follow the chapters in the textbook.

Please be aware , however, that the order of the units in the textbook and this study guide and the order of the sections of the curriculum content are different. Teaching progran1n1es do not have to follow the order of either the curriculun1 content in the syllabus or the textbook. Teachers may have used the schen1e of work provided on CIE's website, so again the order of the units in this study guide will not be the same as the order of topics �n the scheme of work, or the scheme of work provided on the CD-ROM which supports the textbook.

IGCSE Syllabus - Curriculum Content IGCSE Study Guide Units Busi ness and the environ ment i n which it operates: A - Busi ness activity B - The organ isation C- Changing busi ness environment D - Economic environ ment

U n its 1 , 2 U n its 1 , 2 U n its 4, 5 U n its 1 , 2, 2 5

Business structure, organ isation a n d control: A - Ownersh ip a nd i nterna l organ isation B - F inancing busi ness activity

U n its 3, 1 0, 1 1 , 1 2 U n it 9

Business activity to ach ieve objectives: A- Ma rket ing B - Production (Operations management)

U n its 1 6, 1 7, 1 8, 1 9, 20, 2 1 , 22 U n its 6, 23, 24

C - F inancia l i nformation a nd decision-making U n its 7, 8

People i n business: A - Human needs and rewards B - Manpower

U n it 1 3 U n it 1 4

Reg ulat ing and contro l l i ng bus iness activity: A - Reasons for regu l ation B - Inf luences on business activity

• iv

U nits 4, 5 U n its 4, 5, 1 5, 2 5

The IGCSE Business Studies exanlination has two question papers. Paper 1 contains short-answer questions and structured questions based on short pieces of information. The skills being tested are n1ainly knowledge with understanding and application, with fewer n1arks awarded for analysis and evaluation. The questions on this paper carry up to 8 marks, but most of the questions have 2, 3, 4, 5 or 6 n1arks allocated. You will see in the different units in the study guide there are these types of shorter-answer questions for you to practise.

Paper 2 has a business situation or probletn with questions arising fron1 the case study. The skills being tested on this paper are analysis and evaluation, but the questions will be asking for the answer to be applied to the business in the case study. The questions on this paper often carry 8, 10 or 12 1narks. Again, there are questions in the different units in this book, which will help you to practise answering these types of questions.

Introduction • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Section

Key objectives

Key definitions

Sample questions and answers

Common misconceptions and errors

Try th is

Each unit in the study guide has the following five sections :

What the section covers

Outl ines the key objectives, which specify what you should understand or be ab le to do i� the exam i nation.

Summarises the ma in terms or defi n it ions you should know for the examinat ion.

G ives exa mples of student answers, outl ine mark schemes and examiner's marks and com ments.

G ives some common mista kes made by students in exams.

Has exa mination questions for you to answer.

How to use the section

These l i sts can serve as a checkl ist of your prog ress in each topic.

These a re only summaries ( in the form of a tab le or d iagra m) and for more deta i led exp lanation you should add to these from your textbook or class notes.

Cover up the exa m i ner's marks and comments and see what mark you wou l d have g iven the answer before you look at the actual mark that was g iven . This wi l l he lp you understand what is req u i red for fu l l marks.

Answer the q uestions. The answers section at the back of th is revis ion g u ide wil l help you to check the marks your a nswer wou l d have received.

This study guide contains the necessary support for the attainment of the highest grade. I t can be used on its own or in combination as follows:

• to con1plen1ent the I GCSE textbook and CD-lZ.OM • at the end of each topic , to provide reinforcetnent and

assessn1ent • to prepare for the I GCSE exan1ination.

If you want to get the maximum value fro1n this book, it is strongly advised that you attempt to answer all the questions on paper and not in the book. Then you can repeat the exercises at intervals throughout the course.

We hope you find this book a useful resource in your study of IGCSE Business Studies and that it assists you in gaining a commendable grade .

What examiners are looking for Most Business Studies exan1ination papers are testing four different skills . These are :

• knowledge with understanding • application • analysis • evaluation.

Knowledge with understanding. This is tested with the type of question that asks you to explain a particular tern1, for exatnple, 'What is 1neant by market segn1ent?' These are the type of questions where you will need to have revised the tem1s or definitions of the

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INTRODUCTION • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

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different topics. You need to be able to write down what they n1ean clearly and accurately if you are to gain n1axin1un1 nurks. With thorough revision of the definitions section and supporting notes it will be relatively easy to acquire n1ost of the n1arks for these questions. Unfortunately, only about a quarter of the marks across the whole papers will be for knowledge with understanding.

The type of command words which are testing this area are : Describe . . . , State . . . , List . . . , Outline . . . , What is tneant by . . . , Give . . . , Define . . . , Identify . . . , Name . . .

Application. This means the exanuner is testing whether you can apply your answer to the business given in the examination, for example, 'What do you think the business in the case study could do to increase sales?' Your answer must not just be a general explanation of how a business could increase sales, but how this specific business could increase sales. If you don't try to think in tem1s of the business given, you will lose a quarter of the marks across the whole examination papers. So this is a very important skill .

When you look at the revision questions in this book, you will see that there are many mini case studies outlined before the questions themselves so that you can practise this skill of answering in the context of the particular business .

The type of command words which are testing this area are : Explain how this business . . . , Why might company x . . . , Give an example from the case study to . . . , Why n1ight cotnpany z . . . , Fron1. the case study outline . . .

Analysis. The skill of analysis involves being able to select information from text, tables, graphs, diagran1s or drawings. You should be able to arrange information in order to 1nake sense of it, for example, this could involve graphing infom1ation provided in a table. You must be able to analyse what information is being shown, for example, if the information shows an upward trend in the business performance. Or you must be able to exanune the implications of a suggested idea or strategy.

There are �evision sections thoughout this book that contain questions that give you practice of this skill .

The type of command words which are testing this area are: Analyse two factors . . . , Explain why . . . , Using accounting ratios, analyse .. . , Examine why the business .. .

Evaluation. This skill requires you to draw conclusions, n1ake judgements or make recommendations, but they must be justified to ensure the marks are achieved, for exan1ple , 'Which would be the best form of finance for this business to use to pay for the expansion of its factory?' The question does not just test evaluation but also tests knowledge with understanding, application and so1ne analysis . The mark scheme will reflect the different skills being tested and reward then1 accordingly.

Revision sections throughout this book contain questions that give you practice of this skill . Exanuner's tips will also indicate where you need to include evaluation in your answers.

Introduction • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

The type of con1mand words which are testing this area are : Discuss . . . , Justify . . . , Consider . . . , Decide . . . , Which . . . , Evaluate . . . , Why do you think . . . , To what extent . . . , Do you agree . . . , Advise . . . , Assess . . . , Recomn1end . . .

.,.

As you work through the questions in this study guide, try to think about which skills the examiner is testing. For example , if the examiner is testing evaluation by asking if you agree with a particular proposal, then you must make judgements in your answer, so you should agree or disagree and explain why, otherwise you will not gain the higher marks .

Preparing for the examination

Du ri ng the cou rse Preparing for an external examination is a continuous process throughout the course. All the activities , lessons, homework and assignn1ents are major factors in detennining your final examination grade, so the first piece of advice is to suggest that you work steadily throughout the one or two years of the course . It is essential that you prepare thoroughly for internal school examinations then, as you approach the IGCSE exan1ination and start your revision programme, the topics will be familiar and the learning process will be less stressful and more productive . Revision should be what it says , refreshing your men1ory of what you need to know and be able to do for the exan1ination; it should not be learning something for the first time .

Make sure that your notes are up to date . If you n1iss work through absence either copy it from a friend or leave a con11nent in your notes that will remind you to refer to the topic in a textbook. Similarly, look at any hon1ework you have missed and if it involves the reinforcement of skills or concepts, then it would be a good idea to complete it .

In sun1mary:

• work throughout the course • ensure that your work is both complete and accurate • learn the topics for tests and internal exan1inations • seek assistance if you find an aspect of the course difficult.

Revision ti ps • Divide your time so that you revise a section or topic at a ti1ne .

You could do one unit from this guide at a tin1e or you could group units together into the topic areas , for exa1nple , n1arketing would include Units 1 6 to 22 .

• Learn the terms, concepts, facts , etc . thoroughly. Precise and clear answers are more likely to gain full nurks . Vague answers may get son1e credit, but they are more likely to lose you n1arks .

• When you have learnt a particular topic practise answering the questions at the end of the units to test if you have learnt all the

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information thoroughly. Pay particular attention to n1aking sure you explain in detail .

Revision tech n iques Well in advance of the examination, produce a revision tin1etable for all your subjects. Be realistic - you must include time for relaxation and socialising. Then create a more detailed timetable for Business Studies to cover all the topics . Ideally, you ought to go through the complete course twice. Keep a checklist of the topics studied - it is encouraging to have a visual record of your progress.

It is useful to have a syllabus, but not essential as this book includes all the inforn1ation required for I GCSE Business Studies. You will need a quiet room at a co1nfortable ten1perature, plenty of paper and a pencil or biro . Some students find using highlighter pens helpful. On occasions revising with a friend 1nakes a welcon1e and useful change. You will have to discover for yourself the length of time for which you can profitably study. This is a very individual characteristic and can vary fro1n person to person - it may be as little as 30 minutes or over an hour. Do not exceed your optimum study time, break up the available time into study sessions and breaks . Introduce 'rewards' - when I have finished this section of work I will . . .

Revision must b e active, s o do not believe that just looking at a book is an effective way of learning. Your eyes can go over the words but the meaning never enters your brain! You can nuke flash cards that have bullet lists of essential points . You can study the topic for several minutes and then close the book and write out what you can ren1ember - do not take great care over presentation - then check your account against the book. Repeat until you have most of the information correct, then move on to another section of the work.

This is the 'look, cover, write and check' technique and it is very effective for the majority of students . It is crucial that you repeat this technique on the same topic at least once, but preferably twice, soon after your first attempt, i .e . either later the san1e day or the next day.

Once you have acquired a reasonable knowledge of the course, it is time to extend the revision to practising on past papers. This is a n1ost valuable form of preparation because not only does it provide a test of the effectiveness of your revision but it also provides an insight into what to expect in the 'real' examination. You need to practise the skills of application, analysis and evaluation. This requires you to look at case studies to answer questions . Paper 2 practice questions, in particular, will develop these skills but Paper 1 will ask questions in a business context and also develop these skills.

How to approach the exa m i nation If your Centre or school has provided a detailed exan1ination tin1etable, highlight your examinations and put this ti1netable in a pro1ninent place in your home. Ask one of your parents to check with you each day so that you don' t n1iss an examination.

Introduction • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Collect together the correct equipn1ent the night before -pencil, pencil sharpener, eraser, ruler, calculator (are the batteries OK?) and two blue/black pens (in case one runs out) .

Leave hon1e in plenty of ti1ne. If you are late, you will not be given extra tin1� and under certain circun1stances you will not be allowed to enter the examination room. The regulations vary depending on the Examination Board. Do not put yourself at a disadvantage .

Advice for when you a re about to take you r external exam i n ations

• Make sure you know the examination instructions. Read then1 on the front cover and obey then1 . Answer all the questions in the examination as there is no choice given.

• Read each question carefully and pay particular attention to the command words . Highlight or underline the key words in the question. Make sure you obey the con1n1and word, for exan1ple, if the question says 'state two examples' then don't explain them, but if it says 'explain . . . ' then n1ore than a si1nple statement is needed.

• Make sure you read a case study carefully and apply your answers in the context of the case study. This is especially important in questions where you are specifically asked to do so.

• Use all the information provided in the case study. Read the information carefully and underline key points.

• Do not repeat the sa1ne answer in different sections - you do not usually gain double credit.

• Use the nun1ber of n1arks available for a question as a guide to the nun1ber of points needed if you are not told how 1nany to include. Do not write a detailed answer to a question which is only worth 2 marks. However, if 1nore marks are available then a detailed explanation will be needed. For questions using the comn1and words for analysis and evaluation then fewer points will be required, but more in-depth discussion will be needed for the highest marks.

• Make sure you understand how to achieve the higher levels on a question where a level response 1nark schen1e is used. These are usually the ones that are using the con1n1and words for analysis and evaluation and carry a relatively large nutnber of marks, tor exatnple, 6, 8, 10, 1 2 marks . (Your teacher can explain this to you.)

• Be aware of the time available . Use your tin1.e wisely and don't spend a lot of time trying to answer questions you are not sure about. Answer the questions you are n1ore confident in answering and go back to the other questions at the end of the examination. Also, if you have finished the exan1ination before the end then re-read your answers and t1y to add to then1. If you run out of space then fill any space underneath the question or answer on spare paper.

• Make sure the correct equipn1ent is brought to the ex�unination, such as pen , ruler, pencil , eraser and calculator.

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INTRODUCTION • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

ex

After the exatnination the papers are sent to the exatniner allocated to your Centre. This exatniner will be part of a teatn headed by a Principal Exan1iner. All the n1en1bers of the exatnining teatn will look at a sample of their scripts and assess the range of candidates' responses to each question. About a week after the examination, the team will meet to co-ordinate the marking for each question and decide the range of responses that are acceptable. During the n1arking period, the Principal Examiner will sample the marking of each examiner, at least twice, to ensure con1parability of n1arking across the team. The scripts and the marks are returned to the Examination Board where the minin1um mark for each grade is decided. A few weeks later you are informed of your grade .

How to i m p rove you r g rade Here are a few tips :

• Use this book. I t was written to help students attain high grades . • Learn all the work. Low grades are nearly always attributable to

inadequate preparation. If you can recall the work, you will succeed and if you cannot, you will fail. Harsh, but true.

• Practise the skills necessary to be successful including calculations and interpretation of graphs.

• Make sure you can explain your answers in detail and do not make simple statements unless a question asks you for a simple statement.

• Use past papers to reinforce revision, to become fatniliar with the type of question, and to gain confidence.

• Answer the question on the examination paper - do not regard a question as an invitation to write about the topic.

Finally, good luck!

N IT 1 Th e p u rpose of b u s i n ess a ct iv i ty

Key objectives • To understand what is n1eant by scarcity

Key definitions

U nl i mited human wants

e To know what is meant by the economic problem e To apply the idea of opportunity cost to a nu1nber of different

situations e To explain why specialisation is important in modern businesses e To understand the nature of business activity and the groups

involved in it

The economic problem is caused Scarcity of factors of by the scarcity of resources prod uction: la nd, labour,

.............,. (factors of production) compared � ca pita l and enterprise

Scarcity resu lts i n opportunity cost. When choices are made, the next best thing g iven u p is ca l led the opportun ity cost

1 You have $ 1 0 and want to buy both a DVD and a jacket. If you buy the jacket, the DVD is your opportunity cost

Term

Special isation

Division of labour

Business objectives

Va lue added

Stakeholders

to human wants

Defin ition

Where resources are used to concentrate on producing one particu lar product.

Each worker does one spec ia l ised job.

The targets or a ims that a bus iness is work ing towards.

The d ifference between the sel l ing price of a product and the cost of the bought- in materia l s needed to make it.

Groups of people with a d irect i nterest in the performance of a busin ess.

Land- i nc ludes a l l natural resou rces Labour- the nu mber of people a ble to work Capital- ma n-made resou rces such as machines that a id productio n Enterprise- people prepa red to take risks by starti ng bus inesses

Examples

Cou ntries specia l i se, e.g. Qatar in oil product ion. Labour with i n a firm ca n specia l ise, too .

I n a computer assembly factory each worker wi l l perform a specia l ist task.

I ncrease profits, increase sa les, survive. Objectives can d iffer between bus inesses. The objectives of any one bus iness can change over t ime, e.g. surviva l at start-up and profits once it is esta bl ished.

If a f irm sel ls a product for $ 1 5, but the mater ia ls that were boug ht in from other f irms on ly cost $6, then the value added is $9.

Workers, customers, consumers, shareholders, residents, government, ba n ks. These g roups often have d ifferent objectives for the bus iness.

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• 2

Satnple question The AR.C Cotnpany produces and sells costnetics for won1en and girls . The con1pany is owned by a brother and sister. They wanted to tnake more n1oney than they were earning in their old jobs. Although profitable , business sales have fallen in recent years . This is causing nuny stakeholder groups to worry about the future of the business . The owners are very keen for the business to continue . Sales are falling due to new con1petition in the n1arket with exciting new products , so ARC tnust cut production costs to survive. The con1pany has bought expensive new tnanufacturing equipment which is very specialised. Fewer workers are needed and they perform the same tasks each day and some workers have left because they are bored. Production has fallen as a result of this and ARC cannot supply all of the shops.

Marks

Student's answer

Examiner's marks

and comments

The marketing director is keen to increase the value added of the cosmetics . One product - the 'Bella' perfun1e - currently sells for $7 . It is made from soap bought in by the business at a cost of $2 per item. The director believes that by designing new luxury packaging for the product, value added could be increased.

a) How do the business 's objectives seetn to have changed recently? [5 tnarks]

1 mark for explaining what a business objective is; 2 marks for identifying and explaining the original objective; 2 marks for idetztifying and explaining the more recent objective.

Most businesses have objectives that they ain1 for. The objective of this business is to survive . It has a lot of new cotnpetitors and sales are £1lling. Stakeholders are worried that the business n1ight not survive so this is now the business 's objective.

The student understands that objectives are tmgets to aim for - 1 mark. The answer states that the latest objective is probably survival a11d explains why - 2 marks . However, there is no attempt to identify or explain the original objective that seems to have been prof it. 3 I 5 marks .

b) Explain the advantages and disadvantages of using division of labour for this business . [7 marks]

Marks 1 mark for explaining division of labour; 3 marks for explaining two or more advantages for this business (maximum 2 marks if no riference to this business); 3 marks for explaining two or more disadvantages for this business (maximum 2 marks if no riference to this busi11ess) .

Student's answer Division of labour is where a product is n1ade by workers specialising on one stage of production each. The new machinery that ARC bought allowed the business to use division of labour. This n1eans that each worker does what they are best at. This should increase output and itnprove quality . ARC should benefit from lower costs and this will help the business survive. However, division of labour does have its problems. The work can be boring as workers are only doing one job all the tin1e .

The purpose of business activity • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Try to mark this yourself - the examiner's marks a11d COI/11/lCilfs arc 011

page 99.

c) Assume that the marketing director bought in new packaging for the Bella 1Perfun1e. This costs an extra $1 per unit . She increases the selling price by 20%. Calculate the new value added of this product . [3 marks]

Marks If the candidate calculates the correct answer of $5.40 = 3 marks even with no working; if new bought-in costs of $3 is stated = 1 mark; if uew selli11g price of $8.40 = 1 mark; if formula of value added is correctly given = 1 mark.

Student's answer Value added = selling price less bought-in costs = $7 + 20% less $3 = $8.40 less $3 = $5 .40

Examiner's marks 3 marks - well done! and comments

d) Evaluate any one alternative method that the nurketing director could use to increase the value added of this product. lS n1arks]

Marks 1 mark for identifying one other method; 2 marks for cxplai11ing hou' it might increase value added; 2 marks for evaluatil lg this method.

Student's answer To increase value added, the nurketing director could keep the price the san1e but lower bought-in costs . Cheaper rnaterials could be bought in for the perfun1e so that it does not cost so n1uch to make. This will mean that value added fron1 each bottle of perfume will rise .

However, cheaper materials rnight lead to lower quality. I t n1ight n1ake the perfume sr11ell differently . This could lead to fewer sales of the product. If consumers are looking for a quality product in this market then sales could be hit badly .

Try to mark this answer yourself - the examiner's marks and comments are on page 99.


Error

'More money wi l l solve the economic prob lem.'

'Sta keholders a re the sa me as shareholders. '

'Va lue added is the profit made on each u n it . '

Why it is wrong

The economic problem resu lts from sca rcity of resources rather than money.

Shareholders are just one g roup of sta keholders - there are other groups, too.

Va l u e added is not profit as on ly the cost of bought-in materia ls/ components have been subtracted from the se l l ing price.

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e Try this A new plastics factory is t o b e bu i lt in your country. I t wi l l employ many workers and wi l l export some of its output to other countries. It wi l l be bui lt on farmland severa l k i lometres away from the main city. Other plastics businesses are worried about the competition it wi l l bring . It cou ld lead to lower prices for plastic products. Loca l residents have mixed feel ings about the plan. The factory wi l l use specia l ised equ ipment to a l low for d ivision of labour.

a) Identify fou r stakeholder groups that wi l l be affected by the p lan to bu i ld th i s new factory. [4 marks]

b) Discuss how two of these groups might be affected by the new factory. [8 marks]

Examiner's tip ./ You ought to try to think of how stakeholders might be affected in

both positive and nega tive ways.

c) Assess the effect on workers of using d ivis ion of labour in the new factory.

Examiner's tip ./ Define division of labour and consider both advantages and

disadvantages to workers .

[8 marks]

N IT 2 Types of b u s i n ess a ct iv i ty

Key objectives • To know the difference between the three stages of production: primary, secondary and tertiary

e To understand the difference between the private and public sectors of industry

e To explain the differences between horizontal , vertical and conglomerate mergers and takeovers

e To understand the different ways of measuring business size e To explain why some businesses remain small

Key definitions Types of business mergers and takeovers (integration) - an exan1ple from the oil industry:

Horizontal integration will offer more economies of scale a nd reduces average costs

Conglomerate i ntegration is also known as diversification

Term

Primary production

Secondary production

Tertiary production

De-industrial isation

Vertical integration backwards is with a bus iness in the sa me industry but at a d ifferent stage of production: towards the raw material, e .g . i ntegrat ion with Asia Oil F ields pic

Acme O il pic could i ntegrate with other

,.._.. _____ --! businesses in the following ways:

Vertica l integration forwards i s with a business in the same industry but towards the consumer, e .g . i ntegration with Egypt Petrol Stat ions pic

Defin ition

I nd ustries that extract and exploit the natural resources of the earth.

I ndustries that manufacture goods made from the raw materials provided by the pr imary sector.

Industries that provide services to consumers and other sectors of i ndustry.

Relative decl ine in the importance of a country's secondary (manufactur ing) sector.

Examples

Conglomerate integration is with firms in a d ifferent i ndustry, e .g . i ntegration with Namibia Dri n ks p ic

Horizontal integration i s with a busi ness in the same i ndustry at the same stage of production, e .g . Astra Oil p ic

M i n ing, ag riculture, forestry and fish ing .

Car production, com puter assembly, food can ni ng and steel ma king .

Travel agents, bank ing, i nsura nce, health serv ices and transport .

Most advanced industrialised economies are experiencing this .

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Term

Public sector

Private sector

Free market economy

Planned economy

Mixed economy

Privatisation

Capital-intensive businesses

labour-intensive businesses

Internal growth.

External growth

Defin ition Examples

The sector of the economy in whi'h In most m ixed economies, health organ isations a re owned and services and ra i lway services are in control led by the state (government) . the publ ic sector.

The sector of the economy in which organ isations a re owned and contro l led by i nd iv idua ls .

A l l resou rces are privately owned . Prices are determi ned by su pply and demand.

A l l resou rces a re owned by the government, which a lso takes al l major economic decis ions.

Has both a private and a publ ic sector.

The sa le of state-owned assets such as pub l ic corporations to the private sector.

Use a high proport ion of capital equ ipment to prod uce thei r output.

Use a high proport ion of labour to produce the i r output.

B us iness g rowth ach ieved by expanding the exist ing business.

B us iness g rowth ach ieved by merg i ng with or tak ing over other busi nesses.

I n most m ixed economies, reta i l i ng and fa rmi ng busi nesses are in the private sector.

There are no 'pure' free market economies but the USA and South Korea, for exam ple, have very large private sectors compared to the who le economy.

Former communist countries in Eastern E u rope had pla nned (or command) economies.

Nearly a l l cou ntries have mixed economies, but the bala nce between private and publ ic sectors is not a lways the same.

In many countries, for example, the UK and Germany, water, telephone and e lectricity ind ustries have been privatised.

N uclear power p lants, l a rge a utomated car factories.

Fru it picking, private schools, ca l l centres.

Reta i ler open i ng a new shop, car factory extend ing to ra ise capacity.

Hewlett Packard tak ing over Compaq computers, Ch rys ler merg i ng with Daim ler.


• 6

Sample question The main airline in Country X, Airco , is owned and 1nanaged by the central government.

Marks

Student's answer

Examiner's marks

and comments

a) The government decides to privatise this airline. Explain what this means . [2 n1arks]

Up to 2 marks for brief explanatio11 .

This means that the government will sell the public sector airline to the private sector, perhaps to an existing private sector airline company.

Full marksfor clear understanding - there was no 11eed to add 'perhaps to a11 existing pritJate sector airline company ' but it was a good development.

b) Which sector of industry is this business in? Justify your answer. [2 111arks]

Marks 1 mark for tertiary a11d 1 mark for brief explmwtion .

Types of business activity • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Student's answer The airline is in the secondary sector as it produces flights for passengers .

Examiner's marks

and comments

Marks

Student's answer

Examiner's marks

and comments

Marks

Student's answer

Examiner's marks

and comments

No, this is wrong so no marks . Airlines provide trmz�port services to people and businesses so it is in the tertiary sector.

1-

c) Briefly analyse one argument for and one against the privatisation.

Up to 2 marks for each m;gument.

[4 tnarks]

By privatising the airline, the government will force it to becon1e more efficient. It will have to cotnpete with other airlines and will no longer be supported by the governn1ent. However, son1e flights rnight be stopped if they do not make enough profit. This will be a problem for the people affected.

Full marks as there are two clear arguments - one for and one a,�ainst. The student has not wasted any time - the explanations are short and clear.

d) An existing private sector airline, Airgroup , is interested in buying Airco from the government. This integration would make a much larger business. It would be one of the largest in the industry. The government is asking a high price for Airco and some staff do not want to leave the public sector. i) If this integration went ahead, would it be vertical,

horizontal or conglon1erate? Explain your answer. [3 n1arks]

1 mark for horizontal and up to 2 marks for explanation .

This would be horizontal integration. This is because the two firms both provide services and are in the satne industry.

2 marks for this answer because the explanation lacked detail - it should have gone on to say cthey are at the same stage of providing airline services'.

ii) Do you think it is likely to be a good idea for Airgroup to integrate with Airco? Justify your answer. [8 rnarksl

Marks Up to 3 marks each for two explained advanta,�es applied to this lmsilzess (maximum 1 mark each if not applied) plus 2 marks for some jlldj!,ement or evaluation .

Student's answer Airgroup might benefit in several ways frorn this takeover. It will reduce the number of competing airlines. This will reduce competition. Airgroup might be able to increase its prices because of this . Also, it might be able to buy aircraft more cheaply as there might be economies of scale because the firn1 is now much larger than before . So Airgroup will, therefore , definitely benefit frotn this takeover.

Try to mark this yourself - the examiner's marks and comments are on page 99.

7 .

UNIT 2 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

• 8

Com mon m isconceptions and errors

Error

'Organisations in the publ ic sector inc lude publ ic l i m ited compa n ies. '

'There is both backward and forward horizonta l i ntegration . '

'Profits are a good way of comparing the size of busi nesses. '

Why it i s wrong

Publ ic l im ited compan ies a re in the private sector of industry (see U n it 3) .

Horizontal i nteg ration is just between two fi rms at the same stage of production i n the same industry; vertica l i nteg ration can be either backwards or forwa rds .

Profit levels can vary g reatly between compan ies even if they are of s im i lar s ize in terms of workers, capital, etc. Profits a re not a good way of compar ing busi ness s ize.

e Try this The table below shows some data for three shoe manufactu rers in 2005 .

Sales turnover (Sm) Capital employed ($m) Workers employed

Company X 1 60

Company Y 1 00

Company Z 50

a) Which is the largest bus iness: i) i n terms of sa les? i i) i n terms of ca pita l employed ?

35

4

1 0

1 , 500

2,500

700

[ 1 mark] [ 1 mark]

b) How wou l d you expla in the h igh nu mber of workers employed by Company Y yet the relatively low sa les compared to Company X?

[4 marks]

c) Company Z has not expanded in recent years. Expla in any two poss ible reasons why this busi ness remains q u ite smal l . [ 4 marks]

d) The d irectors of Company X are pla nn ing to take over a leather suppl ier. This wi l l cost $ 1 Om. The d i rectors expect the business to gain g reat advantages from this i ntegration . i) What type of i nteg ration is th is? Exp la in you r answer. [3 marks] i i) Ana lyse two poss ib le benefits to Company X from this i ntegration.

[4 marks]

e) The d i rectors of Company Y are p lan n i ng a merger with a cha in of reta i l shoe shops. These shops currently se l l a w ide ra nge of shoes from d ifferent manufactu rers. Wh ich sector of industry do the fol lowing businesses operate in? i) The shoe manufactu rer, Company Y. i i) The reta i l shoe shops.

I n each case, exp la in you r a nswer briefly . [4 marks]

Types o f business activity • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

i i i) Ana lyse one poss ib le benefit to Company Y result ing from this i ntegration. [5 marks]

f) Do you thi n k shoe reta i l ers should be in the pub l ic or private sector in your countr¥? Justify your answer. [5 marks]

Examiner's tip .I Define both sectors and then explain your opinion.

ge

NIT 3 Form s of b us i n ess org a n i sat i on

Key objectives • To understand the differences between lilnited and unlin1ited liability businesses

e To know the reasons why business owners choose to use different forms of business organisation

e To explain the differences between organisations in the private sector and organisations in the public sector

e To explain the advantages and disadvantages of all of these different forn1s of business organisation

e To evaluate these forms of business organisation in different circumstances

Key definitions

Sole trader: a business owned and Partnership: a business owned by operated by one person 2-20 people

I Types of business organisations I Publ ic l im ited company: a business Private l imited company: a owned by shareholders that can business owned by shareholders sel l sha res to the pub l ic th rough Publ ic corporation: a business which ca nnot se l l sha res thro.ugh the Stock Exchange. owned and contro l led by the the Stock Exchange Remember: publ ic l im ited state - a lso known as com pan ies are in the private national ised ind ustry. sector

Term

Limited l iabi l ity

Articles of Association

Memorandum of Association

Annual General Meeting (AGM)

Co-operative

Franchise

• 10

Remember: publ ic corporations a re in the public sector

Defin ition

The l iab i l ity of the owners for the debts of the business is l i m ited to the owners' i nvestment.

A legal document that must be completed before a busi ness is g iven company status. It provides deta i l s of the interna l ru les of the company.

A legal document that must be completed before a business is g iven company status. It provides importa nt information for shareholders .

Compan ies must hold these each year.

An organ isation run by a, g roup of people, each of whom has a f inancia l i nterest in its success and a say in how it is ma naged.

A business that uses the name, promotional logos and trading methods of an exist ing successfu l bus iness.

Examples

Shareholders in a l l companies have l im ited l iab i l ity.

The issu ing of shares and the r ig hts and d uties of d i rectors.

The name, address, reg istered office and issued capital of the bus iness. The objectives of the busi ness a re a lso stated .

A l l shareholders have t h e r ight t o attend and vote on which d i rectors should run the company.

Farmers in many countries operate as a co-operative to sel l their prod uce.

McDonalds, Pizza H ut and Body Shop - most of thei r outlets a re fra nchises owned by d ifferent people .

Forms of business organisa tion • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •


Sample question Rashid has just left school. He wants to set up his own business as a gardener. Rashid wants to be able to control his own working life . He has very few savings - just enough to buy tools . He believes that he will need extra finance .

a) Briefly explain two benefits that Rashid could gain from setting up his own business . [4 marks]

Marks 1 mark for each benef it plus a further 1 mark each for some explmzation .

Student's answer If Rashid set up his own business, he would be working for hin1self He could take all of his own decisions and vvould be independent. This seems to be important to hin1.

He could keep all of the profits from the business. This will encourage him to work hard to n1ake his business a success .

Examiner's marks Full marks - two points made with brief explanation. and comments

b) What forn1 of business organisation would you recon1n1end Rashid to use? Explain your answer. [5 n1arks]

Marks 1 mark for correct identification of appropriate b11siness fonn (for example, sole trader but accept partnership and private limited company if these are explained); 2 X 2 marks for two points well developed a1Ul applied to Rashid.

Student's answer I would advise hin1 to beco1ne a sole trader. These businesses are easy to set up with no expensive legal costs . There are no other owners , so all decisions can be taken by the owner.

Examiner's marks

and comments

1 mark for referring to sole trader plus 2 marks for two advantages ,�ivcn. However, these are not applied to Rashid at all. For example, the sfl/{lent could have referred to Rashid's lack of finance (he may want to avoid legal costs) and his wish to take his own decisions . Therifore, no applicatio11 marks . Total = 3 I 5 marks .

c) Outline two other sources of finance that Rashid could use apart fron1 his own savings . [4 n1arks]

Marks 1 nwrk for each appropriate source plus 1 extra mark j{>r each explanation in the context of Rashid 's business.

Student's answer If Rashid does set up as a sole trader, he will have few sources of finance . He could ask a bank for a loan, but he will need to convince the bank that his business plan for gardening services is a good one . Once he has started working, he could use any profits that he nukes to finance the business, but at the start there would not be any.

Examiner's marks

and comments Full marks as two sources arc identified and explained in terms '�{Rashid's new business.

1 1 •

UNIT 3 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

• 1 2

d) After several months, Rashid has too much work! His business has been very successful in attracting new custon1ers . He also has much work to do in his office such as keeping accounts and ordering supplies . A friend of Rashid's , Sahnan, is keen to become a partner and is taking accounting examinations, but he does not enjoy manual work. Salman has offered to invest some of his savings into the business so that sotne tnodern garden machinery can be bought. This would save Rashid a lot of titne on some jobs.

Would you advise Rashid to take Salman as a partner in his business? Justify your answer. [8 n1arks]

Marks 2 marks for content of advantages/disadvantages of partnership; 2 marks for applying to Rashid's case; 2 marks for analysing at least one point in detail; 2 marks for discussion showing judgement.

Student's answer If Rashid took Salman as a partner, he could share some of the work of running the business . Salman could do the accounts and Rashid could concentrate on the gardening. Sahnan could also put capital into the business. This would allow Rashid to buy equipment which would help him in his work.

However, Rashid would no longer be in full control and that is what he wanted. He would probably have to ask Saln1an before making big decisions, which would slow the process down.

I think that Rashid should take Sahnan as a partner.· The business will then expand, but they should sign a Deed of Partnership to reduce the chance of argutnents.

Try to mark this yourself- the examiner's marks and comments are on page 1 00.

Common m isconceptions and errors

Error

'Sole traders can never employ other workers . '

'Al l partners have to work in the business.'

'A l i m ited company can se l l shares through the Stock Exchange. '

'Pub l ic l i m ited companies a re in the publ ic sector of ind ustry. '

Why it i s wrong

The ownersh i p and busi ness control a re in the hands of one person -this does not stop the so le trader from employ ing addit ional staff.

Some pa rtners can choose to ta ke an active pa rt in control of the business - this wou ld need to be made c lear in the Deed of Partnersh ip . You can a lso have s leeping pa rtners .

Only publ ic l im ited com panies (pic) can do th is; private l i m ited compan ies (Ltd) a re restricted in who they can se l l sha res to.

All private and publ ic l im ited compan ies a re in the private sector owned by private ind ividua ls; pub l ic corporations a re owned by the government and a re in the publ ic sector .

Forms of business organisation • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

e Try th is The growth o f Onyema's c lea n ing busi ness had surprised h i m . Sta rt ing just th ree years ago with a bucket and some sponges, he had offered c lean ing services to loca l shops and offices. With in two months he had taken on three staff and his s ister, Olena, as a partner. F u rther orders came flood i ng in from a wide range of businesses. Onyema and his s ister decided one year ago to set u p a private l i m ited company. 0 and 0 Clea n ing Ltd sounded i mpressive and it mea nt that the busi ness wou ld survive the death of e ither Onyema or Olena. They were keen to control the i r own busi ness. Howeve r, they had further expansion p lans. They wa nted to set up fra nchised businesses in al l reg ions and wou l d supply the company name, logo, tra i n ing and some c lean ing equ ipment. This wou l d need addit iona l fi na nce. The compa ny accounta nt advised that the busi ness shou ld become a publ ic l im ited company. Onyema and Olena had come a long way i n th ree short yea rs - were they ready for th is huge step?

a) Out l ine two poss ib le reasons why Onyema encou raged his sister to become a busi ness partner. [4 marks]

b) Expla in what you understa nd by 'franchis ing' . [2 marks]

c) Onyema and Olena decided to expand the busi ness by offer ing franchises. Do you th i n k this was a wise deci s ion? Expla i n your answer.

[6 ma rks]

Examiner's tip ./ Give the advantages and disadvantages of franchising before deciding.

d) Imagine that you p lan to open an '0 and 0 Cleaning' fra nch ise. Expla i n t h e advantages o f this p lan rather t h a n sett ing up a n e w clean ing busi ness. [6 ma rks]

e) Out l ine two d ifferences between a private l i m ited company and a publ ic l i m ited company. [4 marks]

f) Would you recommend Onyema and Olena to convert the i r company i nto a publ ic l i m ited co mpany? Justify your answer. [8 marks]

Examiner's tip ./ Explain the advantages and disadvan tages before making your

recommendation.

1 3 •

NIT 4 Gove rn m e nt a nd econ om i c i nf l uen ces on b u s i n ess

Key objectives • To explain why and how governn1ents control business activity e To explain why and how governments support business

Key definitions

Unemployment: When people who want a job cannot f ind one. High unemployment red uces people's incomes

Economic growth: An increase in a cou ntry's Gross Domestic Product (GDP) . GDP is the va lue of tota l output in a cou ntry in one yea r

e To know the econon1ic objectives of govenunents e To understand the n1easures that governtnents can take to

control the econon1y �

e To understand the impact of business activity on society

Economic Inflation: I ncreases in average i nfluences on ,�--....._ prices, e .g . i n 2004 the rate of .

inf lat ion i n Argenti na was 5.6% but i n Hong Kong it was only 0 .2%

Trade cycle: The reg u la r u pswi ngs and downswings that occur in a cou ntry's GDP

Boom

The balance of payments: Records the difference between a cou ntry's exports and imports. A balance of payments deficit exists if imports a re greater than exports, e .g . in the USA in 2004

Q.. a 1.!)

Term

Exports

Imports

An increase in rea l income

Recession

Economic boom

Exchange rate

• 14

Defin ition

Goods and services sold by a country to other countries.

Goods and services bought by one country from other countries.

When income rises at a faster rate than inflat ion.

A period when a country's GDP is fa l l ing .

A period of very fast economic g rowth which can lead to h igh inflation.

The price of one currency in terms of another .

Yea rs

Examples

Cotton goods are one of Egypt's major exports.

Argenti na has to import oil and gas.

If an ind ividua l 's income rises by 5 % p e r yea r and prices rise b y 3 % then rea l income has increased by 2 % .

Japan's G D P (after inflation) fe l l by 1 % in 2002.

China's economy g rew by 8% i n 2003.

1 US$ : 1 euro .

Government and economic influences • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Term Defin ition Examples

Exchange rate depreciation A fal l in the exchange rate of a currency.

If the exch ange rate for the US$ fel l from 1 US$ : 1 euro t o 1 US$ :0 .6 e u ro then the US$ has deprec iated.

Direct taxes

Indirect taxes

Import tariff

Import quota

Paid d i rectly from �ncomes.

Taxes on goods and services.

A tax on i mported goods to d iscou rage their sa le .

A legal l i m it on the quantity of a product that may be impo rted.

I ncome tax, company profits tax.

Va l u e added tax, duties on petro l and a lcohol .

Ma laysi a has a 200 % tariff on i mported cars.

The EU used to p lace quotas on imported Japanese cars.

Consumer protection laws Laws des igned to protect consumers from unfa i r actions by prod ucers

U K Consumer Credit Act 2004.

Monopoly

or reta i lers.

A business that has no competit ion in its market - it i s the sole sel ler .

Microsoft has 95% of the ma rket for computer operat ing systems.

I l legal discrimination U nfavourable treatment of someone on specific grounds, u nrelated

Not recru iti ng a person because of the i r age, gender, race, rel ig ion, sexual ity, or beca use they have to their ab i l ity to do the job.

Ethical decision A decision taken on moral· g rou nds.

a d isabi l ity.

A soft dr ink firm decid ing to stop advertis ing d i rectly to ch i ldren as the dr inks cou ld be one of the causes of tooth decay in chi ldren .

Contract of employment A legal agreement betwee n workers and employers l isti ng the r ights and responsib i l it ies of employees.

It wi l l inc lude hours of work, hol iday a l lowance, expected leve ls of behaviour, pension benefits.

National minimum wage The legal m in imum hourly wage rate. In the UK in 2004 this was set at £4.85 per hour.


Sample question Fogla's is a supermarket that sells a variety of food and household products . It pays most of its workers the national minin1un1 wage . The company imports many food products fron1 other countries . The n1anager of Fogla's decided to open a cafe within the supern1arket, which is proving to be popular. It sells quite expensive n1eals and drinks, but the average incotne of local residents is high.

Marks

Student's answer

Examiner's marks and comments

a) Explain one likely reason why the governn1ent insists on a national minimun1 wage . [4 1narks]

1 mark for suggesting a likely reason; 1-3 marks for detailed development.

The government might have wanted to protect workers . When there are not many j obs, en1ployers 1night try to pay workers as little as possible . They could take advantage of workers and only pay thetn very low wages. Workers would have to accept the jobs. The government wants to prevent workers fron1 being exploited .

This is a Jzood answer. A clear reason is given . This is then dcJJelopcd mul explained in enough detail. 4 marks .

1 5 •

UNIT 4 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

• 1 6

Marks

Student's answer

Examiner's marks

and comments

Marks

Student's answer

Examiner's marks

and comments

b) The governn1ent plans to increase the national n1inin1un1 wage by 20%. Discuss the likely effects of this decision on Fogla ' s .

[8 tnarks]

2 marks for knowledge of two iffects; 2 marks for applying these to this business; 2 marks for analysis of these iffects; 2 marks for some discussion and judgement.

Fogla's will have to pay higher wages to n1any of its workers . This will raise the firn1's costs . The con1pany's profits could fall . The manager of the supennarket tnight even tnake son1e workers redundant to save costs , so the effect is likely to be bad. Workers in other businesses will also have higher wages and tnore tnoney to spend though .

2 marks awarded for knowledge (higher costs for Fog/a 's and higher incomes for other workers); 1 mark for some application; 1 mark for explaining the impact of higher costs (possibly lower profits) . Total = 418 marks . The student did not analyse the second point and there was no evaluation of the possible positive impact of higher wages on the business . For example, higher wages could increase incomes for workers in other busi1zesses mzd this could lead to higher spending and increased sales for Fogla 's .

c) Analyse the likely effect on Fogla' s of a depreciation in the country's foreign exchange rate. [6 tnarks]

Up to 3 knowledge marks for good understmzding of exchange rates and depreciation; up to 3 analysis marks for explaining the impact on this business .

A depreciation of a country's exchange rate means that its currency is worth less . For example , if the value of $ 1 falls from £2 to £1 .50 then the $ value has depreciated. The exchange rate is the price of one currency measured against another. This depreciation will make imports more expensive . Goods bought fron1 other countries will be more expensive . Fogla's prices tnight be higher than other supermarkets that do not in1port.

This shows real understanding. The student also analyses the iffect of a depreciation on Fogla 's accurately. Full marks .

d) Fogla's manager is worried when he sees the following newspaper headline:

INTEREST RATES SET TO RISE TO SLOW DOWN INFLATION

Discuss the likely effects of higher interest rates on Fogla's profits .

[8 n1arks]

Marks Up to 2 marks for knowledge shown about in terest rates and inflation; 2 marks for analysing the iffects 011 business; 2 marks for applyirzg these �ffects to Fogla 's; 2 marks for some discussion/judgement .

Government and economic influences • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Student's answer Inflation is when prices rise, and interest rates are the cost of borrowing money. Higher interest rates will affect Fogla 's in several ways . It will cost the firn1 n1ore to borrow. This could mean that it decides not to expand. Also, higher interest rates will mean that consumers will have less to spend. They n1ight not go to Fogla's cafe so often, especially because it is quite expensive. On the other hand, Fogla's might not be much affected. It mainly sells food, and consumers will still need to buy this no matter how high interest rates are . Also , if inflation does fall because of higher interest rates then the firm's costs will not rise so quickly. There will, therefore, be some positive and son1e negative effects .

Try to mark this yourself - the examiner's marks and CVIIIIHCIIfs are 011 page 1 00.

Com mon misconceptions and errors

Error

' Economic booms are a lways good for the economy.'

' Inflation means the economy is expanding. '

'A recession wi l l lead to a fa l l in demand for a l l goods.'

'An exchange rate depreciation means the va lue of the cou ntry's cu rrency has r isen. '

'An exchange rate appreciation wi l l make exports chea per. '

Why it is wrong

They ca n lead to h igher i ncomes, but ' booms' can lead to h igh inflation and lower levels of o utput eventual ly.

I nflation is the measure of the rate of price increases.

A recession lowers consumers' i ncomes - they cou ld switch to buying cheaper goods so the demand for these cou ld r ise.

No - it has fa l len in terms of other currencies.

Exports rise in price after an appreciation of the cu rrency.

e Try th is Mim Chu l Ltd prod uces soft dr inks based on fresh fru it. T h e company h a s a monopoly in Country X. The dr inks are advertised to consumers with the s logan 'Dri n k Mim Chu l 's j u ices and you wi l l never be i l l ' .

a) Expla in the term 'monopoly' . [2 ma rks]

b) Expla in why the government might decide to protect the consumers of soft dr inks in Cou ntry X. [6 ma rks]

Examiner's tip ./ You could write about the firm 's monopoly position and the

advertising it uses. ·

c) The company plans to bu i ld a new factory to make the dr inks. It wants to bu i ld on a site c lose to houses and schools. The government has p lann ing contro ls over the bu i ld ing of new factories. Mim Chul Ltd has a poor reputation for hea lth and safety in its factories.

1 7 •

UNIT 4 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

• 18

Out l ine one possib le reason why the government has p lann ing contro ls for the bu i ld ing of new factories. [4 marks]

d) The government has offered M i m Chul ' s business a grant for the new factory if it is bu i lt i n another area. From the fol lowi ng l i st, place a tick a longside the two most l i ke ly reasons for this . [2 marks]

Possible reason for government grant

To i ncrease i mports

To create more jobs

To increase inflation

To i ncrease demand for the products of loca l suppl ie rs

e) Discuss whether M i m Chu l Ltd should spend money on i mproving hea lth and safety in its factories. [8 marks]

Examiner's tip v' Think about the disadvantages of not having good working conditions .

N IT 5 Oth e r exte rn a l i n f l u e n ces on b u s i n ess

Key objectives • To understand the other external constraints that affect business activity

e To recognise how technology can affect businesses e To know why the environment is of increasing concern to

most businesses e To understand how cost benefit analysis can be used to measure

the full social costs and benefits of business decisions

Key definitions


Technological change Cha nges in products or the ways prod ucts are made resu lt ing from research into new ideas.

Mobi le phones with cameras. Robots used to make cars.

Pressure groups

Private costs

Externa l costs

Private benefits

G roups of people who share a common interest and ta ke act ion to ach ieve the changes they are seeking.

The costs to prod ucers and consumers of an economic activity.

The costs of an economic activity paid for by the rest of society, not the producers/consumers.

The benefits of an economic activity to producers/consumers .

Trade u n ions, G reen peace, World Wide Fund for Nature.

The costs pa id for by a chemica l f i rm when prod ucing prod ucts.

Po l l ution from a chemica l factory which harms the environ ment and may damage the health of loca l res idents.

The benefit to a driver of us ing a car.

External benefits The benefits of an economic activity received by the rest of society other than producers/consumers.

A new a i rport may encou rage tourists to a reg ion, which wi l l br ing jobs to fi rms other than the a i rport.

Cost benefit analysis An ana lysis, usua l ly carried out by the government, i nto the overa l l costs a n d benefits (private and external) of a la rge new project.

An ana lysis of the impact of a new motorway on users, res idents, road safety, etc.


Sample question Norris Cars Ltd manufactures hand-built sports cars . The business has a huge custon1er waiting list. The directors have decided to make a new model of a car using the latest production technology . Workers who have used the san1e rnethods for 111any years will have to learn new skills . The new n1achines \Nill cut do\vn on waste materials and pollution from the factory. R.esidents have often con1plained to the local gover11111ent about No rris Cars and the external costs caused by the factory.

a) Using ar). exan1ple , explain what is n1eant by the tern1 ' external costs ' . [ 3 n1arks]

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• 20

Marks Up to 2 marks for an understanding of this term plus 1 mark for an appropriate example.

Student's answer External costs are when people other than the producer or consumer of a good or service have to pay the costs of producing a product. An example is the pollution from a factory that society has to pay to be cleaned up .

Examiner's marks Full marks - good diftnition and relevant example . and comments

b) The following list gives the possible effects of the decision by Norris Cars to purchase the latest technology equiptnent. Identify with a PC, EC, PB or EB whether they are private or external costs or benefits . [ 4 n1arks]

Cost or benefit

H ig her profits if production costs are lowered

Jobs may be lost if the mach ines are much more efficient

Pol l ution and waste wi l l be reduced

Tra in ing costs wi l l be h igh

Private or external cost/benefit

Marks 1 mark for each correct answer.

Student's answer Cost or benefit

H igher profits if production costs are lowered

Jobs may be lost if the mach i nes are much more effic ient

Pol l ution and waste wi l l be red uced

Tra i n ing costs wi l l be h igh

Private or external cost/benefit

PB

EC

E B

PC

Examiner's marks 4 marks for correct answers . and comments

c) Do you think that the workers at Norris Cars Ltd would think the purchase of the new machinery was a good idea or not? Explain your answer. [8 n1arks]

Marks Up to 2 marks for identifying relevant factors; up to 2 marks for applying these to this business; up to 2 marks for analysing at least one if these points; up to 2 marks for some judgement/evaluation.

Student's answer The case tells us that workers will need to be retrained. Some will be afraid of this . They may have done the san1e job for years and this could tnean they do not want to learn new skills, or they n1ight be slow learners . This uncertainty could reduce their job security and motivation so that they do not work as hard as they could. It is likely, therefore, that they will not think that it is a good idea .

Other external influences on business • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •


1 mark for content as only one factor was mentioned; 1 mark for application}.

2 marks for analysis as the impact on motivation is explained; 1 m ark for very limited evaluation . The answer could have been improved by considering one other factor - workers ttJil/ now be m ulti-skilled and l l'ill he

more able to find pther jobs if they wanted to . Total = 5 I 8 marks .


Error

' New tech nology a lways leads to unemployment.'

'Workers wi l l a lways be opposed to technolog ica l change. '

'Cost benefit ana lysis measures the profit of a project. '

Why it is wrong

New technology can create jobs, as people need to make and service the new mach inery. New technology a lso creates new products and new markets .

Some workers wi l l become more sk i l l ed, which wou ld increase their chances of ga in ing other jobs. Technology cou l d make jobs more secu re if the firm becomes more efficient.

Cost benefit ana lysis tries to assess both private and external costs and benefits (soc ia l costs and benefits) -it is not concerned with profit.

e Try th is Here i s a recent newspaper art ic le :

GOVERNMENT PLANS NEW AIRPORT IN NORTH WEST

Central Government intends to allow a large new airport to be built in the North West. This is an area of high unemploy1nent and more flights into the area will lead to n1ore tourists and increased exports . I t is also hoped that new companies will be set up as the North West will now be cheaper for the transportation of goods . Many local residents are totally opposed to the idea of the new airport. They have formed a pressure group called 'SANW' (Stop Airport in North West) . Most local fin11s have welcon1ed the new airport plan. However, some business people in the area are worried about increased con1petition and a possible shortage of skilled labour. The local government authority is hoping that its tax revenues will rise fro1n airport charges , but it is worried about the effect on local pollution levels .

a) What do you understand by the term 'pressu re group'? [2 marks]

b) List A (below) shows the sta keholders affected by the govern ment's decis ion. Identify the major impact on each group from List B . [9 marks]

2 1 •

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• 22

list A

Centra l Government Local workers in employment Local government authority

list B

Increased loca l tax payments Noise from ai rcraft More choice of jobs for ski l led workers

Residents l iving close to the new a irport Increased competition from air l ines Local unemployed workers More cha nce of finding a job Businesses in the North West Airl ines Train companies Environmenta l ists

Easier to import and export goods Increased exports from the economy Destruction of nature sites Increased fl ights mean expansion

c) Imag ine that you are either a member of the SANW pressure group or a North West bus iness owner. Write a l etter to the Government expla in ing why you either oppose or su pport the new a i rport p lan . [ 1 0 marks]

Examiner's tip .I Try to explain three separate points in your letter.

N IT 6 B us i n ess costs a n d reve n u e

Key objectives • To know the difference between different kinds of costs e To understand what 'break-even level of production' means e To draw and analyse simple break -even charts e To calculate the break-even point from data e To know what a budget is and why budgeting is important e To understand how economies of scale arise

Key definitions

Term

Fixed costs

Variable costs

Total cost

Total revenue (Sales revenue)

Break-even chart

Break-even point

Direct costs

Indirect costs (also known as overheads)

Average costs (also known as unit costs)

Contribution

Budget

Forecast

Defin ition

These costs do not vary with the n umber of items so ld or produced.

These costs vary d i rectly with the number of items sold or produced .

The addit ion of fixed and var iable costs.

The income of a business d ur ing a t ime period from the sa le of output.

This is a graph which shows the costs and revenue of a bus iness and the l evel of sal es that must be made to break even.

The leve l of sa les or output at which Tota l costs = Tota l revenue.

These are costs that can be d i rectly related to a particu lar product or department.

These are costs that can not be d i rectly related to a particu lar prod uct or department.

These are the costs per u nit of output.

The contribution of a product is sel l i ng price less var iable cost.

This is a p lan for the future conta in ing numerical or f inancia l targets.

Th is is a predict ion of the future, for example, sa les forecast.

Examples/ ca leu lation Diagram

Rent of bu i ld ing I nterest on loans M a nagers' sa lari es

S�FC Cost of raw mater ia ls E lectricity used for mach i n ery Production labour costs

Tota l cost = F ixed costs + Var iab le costs

Tota l revenue = Qua ntity sold x Price

Output

Output

Output

� • i

B�o po;nt TR

� � �:: Break-even output

See d iagram a bove.

In a factory making c lothes, l eather used for making one sty le of coat is a d i rect cost.

In a factory making c loth i ng, e lectric ity costs would be very d ifficu lt to 'divide' accu rately between products a nd departments.

C I I t d b T ota I costs a cu a e y: ----Tota l output For example, if costs = $30,000 and tota l output = 1 0,000 u n its, then average cost = $3 .

If a computer costs $ 1 00 i n materia l s and labour (var iable costs), but is sold for $250, then contribution is $ 1 50.

A budget for the market ing department m ight be '$ 50,000 to be spent on promotion over the next 12 months' .

A firm forecasts that it wi l l se l l 200 u n its per month over the next year.

23 •

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Term

Economies of scale

Diseconomies of scale

Defin ition

These are the cost advantages of producing on a la rge sca le.

These are the disadva ntages of producing on a large sca le.

Examples/calculation

Purchasing, marketing, and f inanc ia l, manageria l and technica l economies.

Poor commun ication, low mora le amongst workers .

Sa mple questions and answers

• 24

Sample question The Cairo Tyre Con1pany has asked you to help with sotne costing problems . The manager, Mr Shah, does not know if the factory has reached break-even point. He is also unsure of the likely benefits that could be gained from expanding the business . He gives you the following infonnation:

Annual fixed costs : Labour cost per tyre: Variable cost per tyre : Selling price to customers :

$50 ,000 $ 1 $2 $5 per tyre

Last year, the marketing department spent n1uch more than Mr Shah expected them to . This was one of the reas�ns why the company made a loss last year. Despite this, Mr Shah has plans to expand the factory as he believes that this would increase the chances of making profits in the future .

a) For this business, are labour and materials variable costs? Explain your answer. [ 4 marks]

Marks 1 mark for knowledge: What is meant by a variable cost? 1 mark for application to this business; 2 marks for explanation of why these costs are variable and not fixed costs .

Student's answer Yes, labour and material costs are variable costs for the Cairo Tyre Company because they will change with the nun1ber of tyres made. The more tyres that are made, the more labour and materials will be needed to produce them. Therefore, as output of tyres increases , these costs will increase.

Examiner's marks T11e first sentence shows understanding that variable costs vary with output and comments and the student also applied it to the case by mentioning the number of tyres

made (2 marks). The second sentence explains clearly that these costs increase as the number of tyres produced increases (2 more marks) . Total = 4 marks.

b) Calculate the break-even level of output for this business -show all workings . [4 marks]

Marks 1 mark for break-even formula; 1 mark for contribution calculation; 1 mark for attempted break-ev�n result (incorrect); 2 marks for correct break-even result.

Fixed costs Student's answer The break-even level of output = Contribution per unit

Contribution per unit = Selling price tninus variable costs $5 - $3 $2

Business costs and revenue • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •


$50,000 The break-even level of output = $2 = 25,000 tyres

Full marks again for a correct answer - note lw1v tlze working is clearly laid out, so even if a mistake had been made the examiner could still have given some marks for a correct method.

c) Use the break-even chart below. i) Identify the break-even level of output on the graph and

state what it is . [2 marks] ii) What is the level of profit at an output level of 50,000 tyres?

[2 n1arks] iii) Explain what would happen to the break-even level of

output if the price of tyres was raised to $7 . State one

0 0

"'C O c � ro -

VI VI Q) 't: :::J 0 c

U Q.I > Q) '-

assumption that you make . [6 marks]

400

300

200

1 00

1 2 .5 25 37 .5 Output of tyres ( in OOOs)

}SR �Profit of

$ 50,000 vc

50

Marks 1 mark for appropriate assumption; 1 mark for correct new revenue line; 2 marks for correct new break-even point; 2 marks for �orrect new profit figure.

Student's answer i) The break-even level of output is 25 ,000 tyres - I have shown this with a dotted line .


ii) The profit made is $50 ,000 at an output of 50,000 tyres - I have shown this on the graph . It is the difference between sales revenue and total cost.

iii) The new revenue line is the dotted line I have added (SR?) . The break-even point falls to 1 2,500 tyres . I have assun1ed that sales remain the same.

This answer gained full marks . The student correctly answered all parts of the question. The assumption about sales is important - if the price is raised and sales fall then the firm might not reach the break-even point.

d) Explain briefly two economies of scale that the con1pany n1ight benefit from if it expanded. [ 6 rnarks]

Marks 1 mark for each correct example of an economy <?f scale; 2 marks for each economy that has been explained and applied to the case study .

Student's answer Econon1ies of scale reduce average costs as a finn expands . Two exan1ples are purchasing or bulk-buying econon1ies and n1anagerial

25 •

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• 26


econon1ies . The tyre factory 1night be able to buy rubber n1ore cheaply if it bought greater an1ounts, as it would receive a discount when placing bulk orders. Also, specialist 1nanagers could be recruited to n1anage the business n1ore efficiently, for example, a specialist marketing manager to oversee the marketing of the tyres.

Full marks - two good suggestions and both were accurately explained and applied.


Error

'Var iable costs va ry over t ime. '

' Fixed costs never change. '

'Economies of sca le reduce total costs. '

'Break even is the t ime it takes for a f irm to cover a l l costs. ' 'Budgets are forecasts of what wi l l happen in the future.'

Why it is wrong

Very common error. Var iab le costs vary with the level of output not with t ime. F ixed costs may change in the long run if the firm expa.nds its tota l capacity. No - they do not reduce tota l costs. As a fi rm expcmds, tota l costs are l i kely to rise, but economies of sca le could reduce average costs of production. The break-even point is measured in un its of output/sales n o t t ime. Forecasts are pred ictions, but budgets are plans. A company needs to p lan for the future and budgets are p lans with f inancia l targets.

e Try th is a ) Ind icate whether the fo l lowing costs o f a bakery busi ness are d i rect or ind i rect costs by t ick ing the correct column. [4 marks]

Costs Direct Indirect

F lour Salary of office manager Wages of bakery workers Rent of the bu i ld ing

b) Referring to the Cai ro Tyre Company case above, explain to the manager the possible benefits to his business of using budgets for each department.

[6 marks]

c) Outl ine one poss ib le d i seconomy of sca le that the Ca i ro Tyre Company might experience if it expanded. [3 marks]

d) Do you th ink that break-even charts are a usefu l technique for managers to use? Expla in your answer. [8 marks]

Examiner's tip ./ As well as explaining two advantages, also consider two possible

drawbacks to break-even charts.

N IT 7 B us i n ess a ccou nt i n g

Key objectives • To understand why businesses keep accounting records and how

Key definitions Term

Profit and loss account

Trading account

Sales turnover (Sales revenue)

Gross profit

Net profit

Corporation tax

Dividends

Depreciation

liqu idity

Current ratio

Acid test ratio

Return on capita l employed (%)

they use then1 e To analyse the needs of the different users of business accounts e To understand the construction of simple balance sheets e To understand the construction of simple profit and loss accounts e To analyse business accounts using ratios

Defin ition Examples

An account that records bus iness sa les ABO Traders Ltd profit and loss account revenue, a l l costs and expenses, and for year ending 31 /9/04 ($) any loss/profit made during the year.

(N .B . B rackets round a number mean that it is a minus figure).

The part of the profit and loss account that records revenue, cost of sales and g ross profit. The va lue of sa les in a certa i n t ime period.

Profit after subtract ing the cost of sa les from sa les turnover.

Profit after subtracting all expenses/ overheads from gross profit.

Tax on company net profits.

Annual payments from company profits to shareholders. The fa l l i n the va lue of fixed assets over t ime. The ab i l ity of the business to convert its assets i nto cash and pay off short-term debts.

Current assets Current l iab i l it ies

Current assets - Stock Current l i ab i l it ies

Net profit ------�----- X 1 00 Capita l employed

Sa les turnover 1 2,000

Costs of goods so ld (4,000)

Gross profit 8,000

Overheads (3, 000)

Net profit 5,000

If 1 200 items were sold for $ 1 0 each then the firm's sa les revenue is $ 1 2, 000.

If goods cost ing the firm $4,000 were sold for $ 1 2,000 then gross profit = $8,000.

If gross profit = $8,000 and the firm's expenses/overheads a re $3,000 then net profit = $ 5,000.

If this is at 40 % and net profits are $ 5,000 then the company wi l l pay $2,000 i n corporation tax.

Mach ines and vehic les fa l l in va lue each year. Calcu lated by using the next two ratios.

Using the ba lance sheet on page 28: 2, 500 = 1 .47 1 , 700

Using the balance sheet on page 28: 1 , 500 = 0.88 1 , 700

Using the accounts above and the ba lance sheet: 5,000

1 9,800 X 1 00 = 25 .3 %

27 •

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Term Reta ined profit (Reserves)

Gross profit margi n (%)

Net profit marg in (%)

Balance sheet

Defin it ion Profit made after payment of tax and d ividends. It i s reinvested back into the bus iness.

G ross profit Sa les turnover x 1 00

Net profit x 1 00

Sales turnover •

Examples

Using the accounts on page 27 : 8,000 1 2,QQQ X 1 00 = 66.7 %

Using the accounts on page 27 : 5,000

1 2,QQQ X 1 00 = 4 1 .7 %

The account records a l l busi ness ABD Traders Ltd ba lance assets and l i ab i l it ies and the sheet for year ending va lue of shareholders' funds. 3 1 /9/04 ($) (see below) .

Working capita l The capita l needed by a business to finance its day-to-day needs.

Using the ba lance sheet be low: 800 - it is the same as the net current assets. Balance sheet:

F ixed assets Assets owned by a bus iness Bu i ld i ngs, machinery and Fixed assets: that it expects to keep and motor vehic les. 1----··-·---··------

Bu i ld ings use for more than one year. Mach inery

Current assets Assets that the business wi l l Stocks, debtors, cash. Current assets: use up or turn i nto cash with in Stocks one year. Debtors Cash

Current l iabi l ities Loans and debts of the business Bank overdraft and cred itors. Current l iab i l ities: that wi l l be repa id with i n one Overdraft year. Creditors

Net current assets Long-term The money va lue of debts that Long-term loans and Total assets less l iab i l ities do not have to be repaid in one debentures. current l iabi l ities

year. Long-term l iab i l ities: Shareholders' F i nance provided by Share capita l is from sale of Loans funds shareholders - share capita l or shares. Reta ined profits are Shareholders' funds:

retained profits. ca l led reserves. Capita l Cap ita l employed Tota l va lue of business's Long-term l i ab i l it ies p lus Reserves

long-term finance. shareholders' funds. Capita l employed

Sample questions and answers Sample question Table 1: F inanc ia l i nformation about City Cafe Ltd ($000)

2004 2005 Sales revenue 200 250

Net profit 2 5 1 5

Current l i ab i l it ies 20 20

Current assets 50 20

Capital employed 300 300

·---·----

1 3,000 6,000

1 9.000

1 ,000 1 ,000

500 2. 500

1 , 200 500

1 .700 800

1 9.800

1 2,000

5,000 2,800

1 9.800

a) State and explain two ways in which the owners of City Cafe

• 28

Ltd might use the net profits of the business . [ 4 1narks]

Business accounting • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Marks 1 mark each for identifying the uses of net profit and 1 mark each for briifly explaining each use.

Student's answer The owners of this business could use the net profits either to pay dividends or to keep in the business. Shareholders will expect some dividends as they have invested in the business . If profit is left in the business, it is called retained profit. This could be used for expansion.

Examiner's marks Very good answer - 4 marks. Two uses are identified and briifly explained. and comments

b) Using figures from Table 1 and a ratio , analyse the liquidity of the company. [5 n1arks]

Marks 1 mark for correctly writing down the current ratio; 2 marks for calculation (both years); up to 2 marks for explaining what the result shows abou t liquidity .

Student' s answer The current ratio is a liquidity ratio and uses this formula:

Current assets Current liabilities

50 20 In 2004 the result was: 20 = 2.5 and in 2005 the result was : 20 = 1 This shows that the liquidity of the business is i1nproving as 1 is a better result than 2 .5 . The firm will find it easier to pay its shortterm debts .

Examiner's marks The student makes a good start by accurately stating the formula for the and comments current ratio . The two calculations are correct. The rest of the answer is

wrong, as the student does not understand what the current ratio result shows about liquidity. Liqu idity has, of course, got worse from 2004 to 2005 and if this continues, the business will find it difficult to pay off its short-term liabilities. 3 marks.

c) Using the figures in Table 1 and ratio analysis , evaluate the performance of the City Cafe Ltd between 2004 and 2005 .

[1 0 1narks]

Marks Up to 2 marks for correctly stating two relevant ratios, for example, Het profit margin and return on capital employed. Up to 4 marks for calculations (both years) . Up to 4 marks for discussion which a11alyses the results and draws a conclusion about the peiformance of the business .

Student's answer

Net profit Net profit marg in = x 1 00 Sales Net profit Return on capita l employed = x 1 00 Capita l employed

2004 2005

1 2 . 5 % 6 %

8.3 % 5 %

These results show that the profitability of the business i s falling. The firm is making less profit per $ of sales , perhaps because costs are rising faster than price .

29 •

UNIT 7 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

• 30

Return on capital employed has fallen which 1neans that the money invested in the business is making less of a return .

Both of these figures are poor, but it would help if we had results from other cafe businesses to see if City Cafe is better or worse at making profits than they are .

Try to mark this yourself- the examiner's marks and comments are on page 1 0 1 .


Error

Not remembering the ratios.

.Putt ing sa les revenue in the balance sheet.

'Any current ratio resu lt be low 1 means the firm is bankrupt.'

'Gross profit is a lways less than net profit.'

'Cred itors owe the firm money.'

Why it is wrong

Obvious! Use the l ist above to he l p you . Th is is a profit and loss account item - on ly assets and l iab i l ities appear in the ba lance sheet. A result of 1 i s acceptab le - it means that al l short-term debts are covered by current assets. Even be low 1 , a firm may be l iqu id enough as it is un l i kely that it wi l l have to repay all short-term debts at the same t ime. Net profit is gross profit after expenses have been taken away, so net profit is a lways lower. Debtors are customers who have not yet paid - they owe the firm money. The firm owes money to its cred itors.

e Try this The 2005 accounts for Titan Tankers p ic have just been pub l ished. Groups of stakeholders in the business have been wa it ing to ana lyse these.

a) Identify two of the main accounts that wi l l appear in these pub l ished accounts. [2 marks]

b) Exp la in what one of these accounts conta ins. [3 marks]

c) Table 1 conta ins a l i st of stakeholders in Titan Tankers pic who want to use and ana lyse the company accounts. Copy the tab le and fi l l in the 'Usefu l for' co lumn with one of the options be low:

Table 1 : The users of publ ished accounts Stakeholders: Useful for:

Shareholders Trade un ion Government Cred itors

Options: i) see i ng what the level of d ividends wi l l be this year

Business accounting • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

i i ) analysi ng whether the business has suffic ient l iqu id ity i i i) seei ng whether the business p lans to expand or reduce the labour

force iv) assess ing whether the business seems to be making excess profits.

[4 marks]

d) Using the figures in Table 2 and ratio ana lysis, eva luate the performance of th i s company over the last year. [1 0 marks]

Table 2: F inancia l i nformation from Titan Tankers pic 2005 accounts ($000)

2004 2005 Sales revenue 300 350

Gross profit 60 60

Net profit 30 25

Cap ital employed 200 240

Examiner's tip ./ Explain what your results indicate about the company's performance.

Should these results be compared with any others?

3 1 •

NIT 8 C as h f l ow p l a n n i n g

Key objectives • To understand what is meant by cash inflows, cash outflows and

Term

Key definitions

Cash inflow: The amount of cash received by a busi ness in �ach t ime period

Cash flow forecast

Opening balance

Closing balance

Cash flow cycle

liquidity crisis

• 32

net cash flows e To analyse a simple cash flow forecast e To understand why such forecasts are helpful to businesses e To explain how a business might deal with a cash flow problem

All figs in $000

Cash inflow: Cash from sa les 5,000

--

Cash outflow: Materia ls 1 ,000

Labour 1 , 500

Tota l cash outflow 2, 500 --

Opening balance 1 ,000

Net cash flow 2, 500

Clos ing ba lance 3, 500

Defin ition

A table showing the est imated cash flows of a business over a t ime per iod. Such forecasts he lp to identify future f inance problems and help the firm to p lan for its cash needs. The amount of cash the business holds at the start of a t ime period .

The amount of cash held by a bus iness at the end of a t ime period .

Th is shows the stages between a busi ness paying out for materia ls, labour and other costs and receiving cash from the sa le of goods. The cash flow cycle

Cash outflow: The amount of cash pa id out by a business over a period of t ime

Example

See Table 1 on page 33.

For the business in Table 1 , the open ing ba lance i n October is $3,000.

Opening balance $ 1 5,000. Monthly net cash flow $4,000. Clos ing balance = $ 1 9,000.

See the cash flow cycle figure below.

1 Cash needed to 2 Materia ls, 3 Goods produced pay for wages, rent, etc.

I 1--5 Cash payment 4 Goods sold

'--- ·received for II( goods sold

When a business does not have If a f irm is short of cash, it may enough cash to pay immed iate debts. have to arrange a bank overd raft

or other loans to meet immediate debts.

Cash flo w planning • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •


Sample question Zippo Printers Ltd publishes a range of books, calendars and birthday cards. The directors are planning an expansion progra1nn1e by buying new printing machines. Den1and is very high and stocks have been very low. The managers plan to build up stocks, especially before the end of the year when most calendars are sold. The finance director allows retail customers a long time to pay Zippo's for supplies. She said 'By giving shops more credit we can gain extra orders ' . The finance director is constructing a cash flow forecast for the next three months . She sees real problems arising for the business . The three month cash flow forecast is shown below:

Table 1: Zippo Printers Ltd three month cash flow forecast ($)

Cash in : October November December

Cash from sa les 8,000 1 2,000 1 5,000

Loans received 1 4,000

Tota l cash in : 22,000 1 2,000 1 5,000

Cash out:

Materia ls 3,000 4,000 6,000

Labour 4, 500 5,000 5, 500

Overheads 1 ,000 1 ,000 1 ,000

Purchase of fixed assets 8,000 6, 000 8,000

Tota l cash out: X ·1 6,000 20, 500

Opening balance 3,000 8, 500 z Net cash flow 5, 500 y {5,500)

Clos ing ba lance 8,500 4, 500 ( 1 ,000)

a) Calculate the figures missing as shown above as X, Y and Z. [6 marks]

Marks 2 marks for each correct answer - 1 mark for good attempt at calculation.

Student's answer The total cash out in October = $3 ,000 + $4,500 + $1 ,000 + $8 ,000 = $1 6 ,500. So X should be $1 6 ,500 .


Net cash flow = cash in - cash out. In Noven1ber th is = $ 1 2 ,000 -$ 1 6,000 = $4,000 so y = $4,000. The opening balance in December will be the sarne as the closing balance in November, so Z = $4,500.

X is correct so 2 marks. 1 mark for Y because a lthough the number is correct, the net cash flow is negative and should be shown as ($4000) . Z is correct so 2 marks. Total = 5 I 6 marks.

b) Explain one benefit to Zippo' s finance director of this cash flow forecast. [ 4 tnarks]

Marks 1 mark for identifying a benefit; 1 mark for applying to Zippo 's forecast and 2 marks for explaining why it is a benefit.

33 •

UNIT B • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

• 34

Student's answer


The cash flow forecast helps fim1s plan for future loans . It looks as though Zippo's will need a loan in Decen1ber as the cash flow forecast is negative. By producing this forecast, a bank is n1ore likely to offer a loan as it shows that the company is planning carefully .

This is correct. The student has explained one use of cash flow forecasts well, and takctt informatiott from Zippo 's forecast. 4 marks .

c) What could be done to improve the cash flow of this business? Identify two ways of improving Zippo's cash flow frotn the list below. [2 tnarks] • Reducing sales • Increasing material purchases • Paying suppliers more slowly • Obtaining a loan • Offering less credit to retail shops

Marks 1 mark for each correct point idetttified.

Student's answer Obtaining a loan, offering retail shops less credit.

Examiner's marks 2 marks - both correct . and comments

d) Using the two ways you have identified, explain to Zippo's finance director the advantages and disadvantages of these two ways of improving cash flow. [ 6 marks]

Marks 2 marks for applyittg points to Zippo; 2 marks for explainittg in detail and 2 marks for evaluation .

Student's answer A loan will give the company more cash . It could ask the bank to pay this loan in December so that cash flow does not becotne negative . The firm will have to pay interest on the loan, which will add to the overheads of the business .


Offering less credit to retail shops will mean fewer debtors, thereby turning customer debts into cash and improving cash flow.

Briif, but accurate. 3 marks for the first paragraph - all skills are shown . 2 marks for the second paragraph - there is no evaluation. The student could have said that shops may stop buying cards from Zippo 's and buy cards from a firm that offers more credit. 5 I 6 marks .


Error

'New businesses do not need cash flow forecasts as they have on ly j ust started. '

Why it i s wrong

They need cash f low forecasts more than most firms ! They need them to: a) apply for start-up loans from

banks b) encourage people to invest in

the bus iness c) mdndg� c��h flow� t�t t� v�ry

expensive t ime in a bus i ness's l ife cyc le .

Cash flo w planning • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Error

Confusi ng cash flow with profit: ' If a firm is making a profit it wi l l have a good cash flow.'

Forgetting the negative s igns - put figures i n brackets.

Why it is wrong

Cash and profit are very d ifferent. A profitable busi ness can run out of cash. A loss-making business cou ld have plenty of cash, for example, ACE Su it Co. Ltd in March 2005 :

Sales = 200 su its at $75 = $ 1 5,000 Variable costs = $25 per suit = $ 5,000 Fixed costs = $3,000 Profit in March = $7,000

BUT if ha lf of the su its were so ld on cred it and a l l costs were paid in cash: Cash in = $7,500 Cash out = $8,000 Net cash f low = ($500)

M istakes wi l l be made with minus additions if the m inus s igns are not shown .

e Try th is Rishav and Abdu l l ah are friends who want to set up their own rad io stat ion. They wi l l need a large amount of equipment. The f inance wi l l come from investors and the bank and they a lso p lan to sel l advert is ing space. It wi l l take severa l weeks for f irms to pay for advertisements so the friends wi l l have to attract many l isteners fi rst. The i r accountant has constructed a cash flow forecast for the fi rst th ree months:

($)

May June July

Cash in from advertisements 0 1 , 500 3,000

Capita l and loans 4,000

Cash out: Purchase of equipment 5,000 2,000 0

Salaries 500 500 500

Overheads 1 ,000 1 ,000 1 ,000

Total cash out: 6, 500 3, 500 1 , 500

Opening ba lance 0 (2, 500) (4, 500)

Net cash flow (2, 500) X 1 , 500

Closing ba lance (2, 500) (4, 500) (3, 000)

a) Calcu late the va lue of net cash flow in June. [ 1 mark]

b) What is meant by the term 'closing ba lance'? [2 marks]

c) Use the cash flow forecast and the case to exp la in why the closing balance is negative at the end of J u ly. [4 marks]

d) Exp la in why it was so important to Rishav and Abdu l l ah to have this cash flow forecast before they started their bus iness. [6 marks]

Examiner's tip ./ Explain how a cash flow forecast helps with planning the finance needs

of a new business - use the figures in the table to help you.

3 5 .

NIT 9 F i n a n c i n g b u s i n ess a ct iv i ty

Key objectives • To understand why businesses need finance

Key definitions

e To explain the advantages and disadvantages of different sources of finance

e To understand which sources of finance are most suitable in different situations

Sources of finance can be INTERNAl finance: Ra ised from / e ither INTERNAL or EXTERNAL with in the business

EXTERNAl finance: Ra ised from ind iv iduals or institutions

I Reta ined profit: Profits kept in

outside the business

I the busi ness after payments to loans: F inance obta ined from owners (d ividends), e .g . : an institution, e .g . bank, that Net profit after tax $ 5,000 must be repaid at some t ime in D ividends $2,000 the future Reta ined profit $3,000 I

Sale of shares: A share is a Sale of assets: Rais ing fi nance by sel l i ng off assets the business no longer needs

I Control of working capita l : Sel l ing off stocks and ask ing debtors to pay more qu ickly

document g iving part ownersh ip of a company. Se l l i ng more shares ra ises addit ional cap ita l

I Debentures: A long-term loan to a busi ness - the lender receives a certificate ind icating date of repayment

I Overdraft: When the bank agrees for the business to borrow up to an agreed amount. The a mount bo"rrowed can be varied, but i nterest rates are often h igh

• 36

Financing business activity • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Term

Debt factoring

Leasing

Hire purchase

Trade credit

Business plan

Start-up finance (capital)

Capital expenditure

Revenue expenditure

Defin ition

This is the sale of debt i nvoices (money owed to a business by its customers) to a spec ia l ist f inance organ isation.

Obta in ing the use of an asset in exchange for regu lar leas ing charges instead of buying it outrig ht.

Th is a l lows a busi ness to purchase an asset by making month ly payments over a period of t ime. Credit ga ined from suppl iers .

A report that g ives deta i ls of the marketing, production and f inancia l p lans of a new busi ness sta rt-up. The capita l needed to set u p a new business.

Spendi ng on fixed assets that wi l l last more than o n e year. Spending on day-to-day expenses, not fixed assets.

Examples

If a customer owes a busi ness $60,000 to be pa id i n th ree months' time, the business cou ld sell th is i nvo ice to a debt factor for immediate cash, but at a d iscount. Many computers are leased to businesses - they become outdated qu ickly, so purchasing them can be a d isadvantage. Th is is an a lternative to using cash to buy the asset outr ight.

A suppl ier del ivers goods va lued at $2,000, but these wi l l be pa id for in two months' t ime. See page 1 39 in IGCSE textbook (2nd ed ition) .

F inance wi l l be needed for such assets as bu i ld ings and stocks before trad ing can beg in . Bu i ld ings, machinery and veh ic les

Wages, purchase of mater ia ls and e lectricity


Spending plan

Sample questions 1) Heathwood Engineering plc needs additional finance. The business has three spending plans . Select one source of finance from the list below for each plan. State one reason for the source of finance selected in each case.

Suitable source of finance Reason for choice

New computers for the office Takeover of a rival business Temporary increase in stocks

Sources of finance: Issue of shares Leasing Trade credit Long-term loan [6 n1arks]

Marks 1 mark for each appropriate source plus 1 mark for relevant reason .

3 7 •

UNIT 9 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Student's answer

Spending plan Suitable source of finance Reason for choice

New computers for the office Leas ing As computers wi l l become out of date qu ickly, Heathwood does not actua l ly want to own them.

Takeover of a riva l busi ness Issue of shares The takeover is l i kely to be expensive and issues of shares can raise a lot of ca pita l . A l ong-term loan wi l l lead to h igh interest payments.

Temporary increase in stocks Trade cred it No need for a long-term loan if the increase in stocks i s temporary.

• 38

Examiner's marks · Full marks - correct choices and good reasons given . and comments

2) Jill and Zuki are two friends who want to open a new beauty salon. They are both skilled hairdressers, but they have not owned their own business before . They are applying for a large bank loan to help with 'set-up' costs . i) What 'set-up ' costs will need to be paid before the business

starts to trade? State two examples . [� n1arks]

Marks 1 mark each for appropriate costs identified.

Student's answer Rent of premises , purchase of hairdryers .

Examiner's marks and 2 marks . comments

ii) State three questions that the bank manager is likely to ask Jill and Zuki before giving the loan . Briefly explain why each question is important. [ 6 marks]

Marks 1 mark for each relevant question; 1 mark for each relevant reason.

Student's answer Qt. Where are you setting up your business? Reason: So that he can tell whether it is a good area for this type of business .

Q2. Have you done any market research? Reason: So that he can tell whether the two friends have looked into the possible demand.

Q3 . How much money are Jill and Zuki going to invest? Reason: So that the bank n1anager can see that the bank will not be taking all of the risk.

Examiner's marks Full marks again - three good questions plus relevant reasons . and comments

3) i) What do you understand by a business plan? "i

Marks 2 marks for good understanding; 1 mark for some understa11ding.

[2 n1arks]

Student's answer A business plan contains details of a new business start-up including market research and aims of the business .

Financing business activity • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Examiner's marks There is enough understanding shown for 2 marks . and comments

ii) Jill and Zuki decide to draw up a business plan . Will this convince the bank n1anager to give a loan? Explain your answer. Jo [ 6 nurks]

Marks 2 marks for explaining what a business plan would contain for this business (knowledge and application); 2 marks for analysing how it could irifluence the decision; 2 marks for evaluating its impact on the decision .

Student's answer In their business plan, Jill and Zuki will present useful information about their idea for the beauty salon. They should include market research about other salons, details of their experience , where the salon will be located and how much finance they will need. This will definitely mean that the bank manager will lend then1 all the money they need. The manager will see that they have thought about the business and so will be prepared to lend the money.

Try to mark this yourself- examiner's marks and comments are on page 102.


Error

'Al l l im ited companies can sel l more shares on the Stock Exchange.'

'Se l l i ng more shares i s an example of i nternal fi nance.'

'Shares are a form of long-term loan. '

'An overdraft is a long-term loan . '

Why it is wrong

Only pub l i c l im ited companies can do this - private l im ited compan ies cannot do this . Even though shareholders own a company they are 'outside' providers of capita l - the company is a separate legal un it. Sa le of shares i s external f inance. No - shares do not have to be repa id by the company. Al l loans have to be repaid eventual ly. No - an overdraft can be ca l led back by a bank at short notice. A longterm loan is for an agreed period, usua l ly more than ten years .

e Try this a ) The tab le below l i sts three sources of business f inance. Copy the tab le and briefly exp la in o n e advantage and o n e d isadvantage of each source.

[6 marks]

Source of finance Disadvanta�e

I ssue of new shares by a company Overdraft Long-term loan

b) Use the fol l owing table to indicate with a tick whether the fo l lowi ng sources of fi na nce are i nterna l or externa l : [4 marks]

39 •

UNIT 9 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

• 40

Source of finance Internal External

Debenture Issue of shares Retai ned profit Sa le of bu i ld ings

c) The d i rectors of a publ ic l im ited company are p lann ing to double the size of the exist ing factory. Th is wi l l cost $5m. The company a l ready has substantia l long-term loans. The d i rectors st i l l control just over 50% of the shares between them. They a re considering four poss ib le sources of fi nance: new share issue, long-term loan, overdraft, reta ined profits.

Advise the d i rectors on the most su itab le method of fi nancing this expansion. G ive reasons for your answer. [8 marks]

Examiner's tip ./ Think about how long they will need the finance for.

Term

N IT 1 0 O rg a n i sat i o n a l st ru ctu re

Key objectives • To explain what is meant by 'organisational structure' and why businesses need one

e To understand how organisational structure can be shown on a diagram and why it changes as firms expand

e To analyse the different ideas connected to organisational structure

e To understand the impact of decentralisation on a business

Key definitions The diagram below shows the typical organisational structure of a business . This structure shows how the business is organised internally with levels of responsibility:

Human Sales resources

manager manager

� � I I I I I

��

Chief executive

� I

Admin Accounts manager manager

� �

Defin ition

Promotions manager

� I I I

��

The vertica l l i nes show the chain of command - the l i nks through which i nstructions are passed down from managers to subord inates

The horizonta l l ines show the levels of h ierarchy - the managers on each level have equal authority

The span of contro l is the number of staff who report to each manager. The span of contro l of the sa les manager is five

Exa mples

Delegation G iving a subord inate the authority to do certa in tasks.

A marketing manager may delegate the task of gathering market data

Hierarchy

Tal l structure

Functional departments

Line managers

Staff manager

The different levels of authority in the organ isation. This type of organ isation has many levels of h ierarchy and sma l l spans of contro l . Departments in an organ isation that have respons ib i l ity for one part of the business ..

Have d i rect responsib i l ity for decisions and for the work of staff. Specia l ist advisers who support the l ine managers and d i rectors.

to a worker in h is or her department

The chart above shows the h iera rchy of the business.

Market ing Accounting Production

Market ing manager, accounts manager. IT spec ia l ist, economist.

41 •

UNIT 1 0 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •


Decentra l isation Taking decis ions away from the centre of an organ isation - away from Head Office.

The Egyptian divis ion of the German ca r firm Mercedes may take many decis ions without referri ng back to d i rectors in Germany.

Sa mple questions and· answers

• 42

Sample question Yuan's business has grown rapidly in three years . Setting her flower business up as a sole trader, Yuan had nude all of the in1portant decisions. Now she has three flower shops and a home delivery service . She employs an accountant, managers for the shops, and a transport manager. The current organisational stn1cture is shown below:

Yuan Shop

manager A Shop

manager 8

� I

a) What is the span of control of shop manager A?

Marks 1 mark for correct answer of four.

Student's answer Four people report to this manager.

Examiner's marks Good! 1 mark. and comments

[1 mark]

b) How many levels of hierarchy are there in this business?

Marks 1 mark for correct answer of three.

Student's answer There are four levels of hierarchy.

Examiner's marks No - there are only three levels including Yuan herself 0 marks . and comments

[1 mark]

c) If shop A expands and four more staff are employed, the manager's span of control will increase . i) Explain one advantage of this . ii) Explain one disadvantage of this .

[3 tnarks] [3 marks]

Marks 1 mark for identifying each factor and up to 2 marks for explaining each m1e.

Student's answer i) A wider span of control will mean that the manager will have oJ.

to delegate more authority to each worker. This could n1ean that their jobs become n1ore interesting.

Examiner's marks Full marks for an accurate and well explained answer. and comments

. I

I f I I

I I

I

Organisa tional structure • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Student's answer

Examiner's mark� and comments

ii) A wider span of control 1neans a longer chain of con1n1and, so messages will take longer to reach the staff.

No marks here - a wider span of control does not create lllore levels of hierarchy and therefore does not make the chaill of conunand lo1 1._�er. The student could havl!explained the reduced control that the tnanager will have with a wider span of control.

d) How do you think the organisational structure of Yuan's business might change if it continues to grow? Explain your answer. [8 n1arks]

Marks 2 marks for identifying possible changes; 2 marks for applying them to this business; 2 marks for explaining I analysing changes and 2 marks for evaluation.

Student's answer If Yuan's business grows, it will need a new structure . More departments will be needed, for exan1ple, marketing and human resources . Yuan might need to recruit some n1ore senior n1anagers, as she will not be able to take all of the decisions herself. A marketing director would help her to advertise the flower shops . The chain of command will get longer so that staff in the shops will have to wait longer for messages from the top . The structure will depend on the span of control that Yuan wants and whether she decides to decentralise the business . If she decides to grow flowers as well as sell them, a new division will be needed.

Try to mark this for yourself. The examiner's 1narks and comments are on page 1 03 .


Error

'Delegation is g iv ing a l l responsib i l ity to workers.'

'Staff managers control the staff.'

'A wider span of control means that more managers are needed.'

Why it is wrong

Delegation gives authority or power to workers to do a job - the manager sti l l has the f inal responsib i l ity. Staff manages are spec ia l ist advisers - they do not control the l i ne workers in the busi ness. A wider span of control means that more workers report to each manager - so fewer managers m ight be needed.

e Try th is Ahmed Cloth ing Ltd i s a c lothing manufacturer. I t ha s three factories i n three different countries. Each factory is contro l led by a factory manager who is he lped by three production supervisors. Each supervisor contro ls the work of five production l i ne workers.

a) Sketch the organ isation chart for one of Ahmed's factories. [4 marks]

43 .

UNIT 1 0 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

• 44

b) The company has three leve l s of management at Head Office. The business is contro l led by Abadu l lah Ahmed. He bel ieves in tak ing a l l of the important decis ions h imself. The factory managers have to ensure that Abadu l lah 's des igns of clothes are fo l lowed. Each factory pays its workers exactly the same wages. Methods of production a re decided on by Abadu l lah and his Head Office managers . i) Expla in one problem that cou ld resu lt from having many levels of

h iera rchy. [4 marks] i i) Would you describe Ahmed Cloth ing Ltd as being a centra l ised

business? Exp la in your answer. [4 marks] i i i) Discuss whether Abadu l lah should decentra l ise his busi ness. [8 marks]

Examiner's tip ./ You should try to define decentralisation, give advantages and

disadvantages and then make a decision.

N IT 1 1 M a n a g i n g a b u s i n ess

Key objectives • To explain the role of managers in business

Key definitions

e To understand the qualities needed for a good 1nanager e To outline the different management responsibilities within

different departments

Planning: Setting a ims and targets for the organ isation, e.g. to increase market share by 2 %

A manager has respons ib i l ity for � resources and decis ion mak ing . The role of managers i nc ludes:

Control l ing: Checking that the ...,_ __ ...,., targets are being met and

appra is ing staff

Term

Co-ord inating: Br ing ing people and departments together so that they work towards common aims

In itiative

Strategic decisions

Tactical decisions

Operational decisions

Decision-making process

Ch ief �xecutive (Managing Director)

Commanding: Using authority to g ive and d iscuss tasks and targets to staff

Definition

Abi l ity to work on one's own and to make suggestions for so lving problems. Important, long-term decisions, that can affect the overa l l success of the business. Frequently taken and less important decisions. Day-to-day decis ions taken with i n each department. The stages a manager shou ld go through before tak ing an important decision - shown by the decis ion-making flow chart :

Organis ing: Managing peop le and resources effectively towards ach iev ing the aims of the organisation

Examples

If qua l ity of output is fa l l i ng, a manager m ight come up with an idea to improve it. Pepsi decides to open their own cafes.

Should we buy trucks or lease them?

Which dresses should we put in the shop window? See f igure below.

1 Objectives of 2 Identify the the bus iness �----�� problem

4 Cons ider options L----------l and take decis ion

The d irector (or sen ior manager) in charge of al l operations with i n a business.

Try to find out the name of the Chief Executive of a wel l known company in your country.

45 .

UNIT 1 1 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Term Human resources manager

Marketing manager

Finance and accounts manager

Operations manager (Production manager)

Administration manager

Defin ition Respons ib le for a l l aspects of tra in ing, motivating and appra is ing staff.

Responsib le for a l l aspects of market research, the marketing m ix, and sa les performance of products.

Responsib le for keeping fi nancia l records, producing annual accounts, and contro l l i ng cash flows.

Examples The manager wi l l negotiate with trade un ions on pay. The manager wi l l prepare job descriptions and job specifications for recru iting new staff. The manager wi l l decide the price at which each product is so ld . If th is is too h igh, few consumers wi l l buy it. If the net cash flow is negative, th is manager wi l l be responsib le for ra is ing addit ional f inance.

Responsib le for producing the Ordering stocks of raw materia ls, product/service in the r ight quantities check ing on qua l ity standards, us ing and to the correct qua l ity leve l . the most appropriate production

methods. Responsib le for c lerica l work, IT equ ipment, and maintenance of

. bu i ld ings.

Keeping records and offic ia l documents, maintain ing the computer system and arrang ing maintenance to the bu i ld ings when necessa ry.

Sa mple q�estions and ·answers

• 46

Sample questions 1) Match the areas of responsibility (see list below) to the manager:

Manager Marketing Operations (Production) F inance Admin istration

Areas of responsibility:

i) arranging bank loans

Responsible for:

ii) deciding which newspaper to advertise in iii) checking on quality levels iv) organising the post roo1n for despatch of letters .


Student's answer Manager Responsible for:

[4 marks]

Marketing Decid ing which newspaper to advert.i se i n

Operations (Production) F inance Admin istration

Checking on qua l ity leve ls Arrang ing bank loans Organis ing the post room for despatch of letters

Managing a business • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Examiner's marks 4 marks - all correct. and comments

Marks

Student's answer


2) Harry owns a TV repair shop . He en1ploys five n1echanics and two adn1inistration staff. He plans to open a new branch in another towq. He needs to recruit a tnanager for this shop. The manager will have to organise the workers , and deal with customers and all problems. Explain two qualities that you think a successful manager of Harry's new shop is likely to have .

[6 marks]

1 mark for each point and 1 mark for putting each point in to con text; 1 further mark for explaining each point.

The manager will need to be knowledgeable about television repair. It will be easier for the n1anager to run the shop if he or she, as well as the workers , has the ability to repair the televisions . The manager will also need good con1n1unication skills so that he or she can speak clearly.

416 marks. Two relevant points were made, but only the first was developed in the context of TV repairs . The second point, about good communication skills, could have been developed by explaining that these would be necessary to make technical details clear to customers .


Error

'Managers just g ive orders to other workers . '

' If managers take decisions carefu l ly, there wi l l be no risks for the busi ness.'

'Human resources managers j ust recru it and sack staff.'

Why it is wrong

There are so many other parts of a manager's job - and wou ld 'g iv ing orders' be a very effective style of management? Even the best managers tak ing the best decis ions wi l l have to accept some risk - changes to the economy, for example, are not under the control of managers . HR managers a lso have responsibi l ity for tra in ing, staff appraisa l , negotiating with un ions, keeping staff records and motivating staff.

e Try th is a ) Exp la in one reason why you th ink i t i s important for a manager t o set a ims or targets for the business. [4 marks]

b) A manager is worr ied about fa l l i ng profits. She knows that a major change is needed to solve this problem . Before taking a decis ion she

47 .

UNIT 1 1 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Details

Age Education

Restaurant experience

Main business ski l ls

'Describe your main personal qual ities'

'What plans would you have for the restaurant?'

• 48

decides to use the decision-making flow chart. F i l l in the gaps us ing the sentences below:

4 '---------i

Col lect and ana lyse data Review - was it successfu l ? Consider options and take decis ion

3

[3 marks]

c) Umeel is reti r ing after 25 years of managing h is own restaurant. It is a very successful busi ness. He employs 25 tra ined staff and needs to recru it a new manager. After advertis ing the job, he must decide between two appl icants. He has gathered the fol l owing information about them:

Person A 35

Business degree 3 years as jun ior manager.

Motivating staff, good communicator. ' I am a natura l leader and I am ambitious for myself and the restaurant. ' ' I would aim to double its s ize and employ more staff.'

Person B

5 5

A levels 20 years as chef and then 5 years as manager. Cooking, order ing r ight amount of stocks. ' I am a very hard worker. I enjoy g iv ing people p leasure with the food I cook. ' ' I would l i ke to encourage staff to cook even h igher qua l ity food.'

On the basis of this i nformation, which person would you choose for the manager's job? Justify your answer. [ 1 0 marks]

Examiner's tip ./ Think of the qualities of a good manager and apply these to the

information above. The final choice might depend on the aims tha t Umeel has for the business.

N IT 1 2 C om m u n i cat i on 1 n b us i n ess

Key objectives • To understand why good conlmunication is inlportant to business

Key definitions

The sender of the message should send it in clear language and using the most appropriate method

Term

Verbal or spoken communication

Written communication

Visual communication

Formal communication

Informal communication

Barriers to communication

Internal communication

External communication

e To explain the advantages and disadvantages of different communication methods

e To examine why barriers to communication exist and how they can be reduced

One-way communication a l l ows for no feedback, e.g. a safety notice on a f ire door

The communication method or medium i s how the message is sent, for example, written e-ma i l or a face-to-face conversation

Feedback a l lows for two-way communication, e .g . a rep ly to a question

Definition

The sender speaks d i rectly to the rece iver(s) .

The message is sent in a written form.

The message is put into a form that can be understood visua l ly, not written or spoken. Messages sent by using the channels set up by the organ isation . Messages through the 'grapevine' of informa l contacts. The reasons why commun ication fa i ls .

Messages sent and received by people with in the organ isation .

Messages sent outside of the organ isation.

The receiver should understand and act upon the message. If asked for, feedback should be g iven

Examples

1 . Telephone 2. Meetings 3. Conversation 1. Letters 2. Memos 3. E-mai l s 1 . Graph of sa les f igures 2. Video 3. Posters 1 . Reports 2. Minutes from a meeting Staff ta lk ing at breaks or l unchtimes. 1. Unclear language 2. Too many levels of h ierarchy 3 . Using the wrong method 1 . Manager ta l k ing to workers 2. Notice on company notice board

or i ntranet 1 . An order sent to a suppl ier 2. Letter to a customer

49 .

UNIT 12 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Sample quest ions and answers

• 50

Sample questions 1) Choose the best n1ethod of conununication . Match the message (table A) with the method cif communication (table B) . [4 n1arks]

A - the message

a) List of staff names who have Fi rst Aid tra in ing

b) Urgent order to suppl ier c) Deta i l ed map of how to

get to the factory to be sent to ten v is itors arriving this afternoon

d) Contract of employment for new worker


Student's answer a) = iii)

b) = ii)

c) = iv)

d) = i)

B - the method of communication

i) Letter ii) Telephone ca l l i i i) Notice board iv) E-ma i l

Examiner's marks Full marks - do you understand why these are the correct methods to �se? and comments

2) Explain two advantages of managers using meetings with staff as a main form of communication. [ 4 nnrks]

Marks 1 mark each for identifying an advantage plus 1 mark each for explahzing.

Student's answer Meetings between a 1nanager and workers allow for feedback. This means that if the worker does not understand the tnessage then he or she can ask for more information .

Another advantage i s that workers n1ight be more tnotivated.

Examiner's marks 3 marks awarded, 2 for two benefits, but only one cif them is explained. and comments The studettt could have added that by allowing talking and discussion between

manager and staff, the worker will feel more involved and keen to work hard.


Error

'Communication is a lways more effective via computer.'

'Two-way communication i s a waste of t ime. '

Why it i s wrong

It may be true that computers a id communication, for example, i nternet and e-ma i ls, but it is not always the case. They can break down and often lead to too many messages being sent - the receiver may not be able to te l l which a re the most important ones. Two-way communication may take more t ime than one-way, but it has many benefits. It a l lows for feedback, questions and i nvo lvement of the staff.

Communica tion in business • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Error

' Letters are the best form of communication. '

Why it is wrong

Th is is often not true . They can be too formal and time consum ing they a lso do not a l low for immediate feedback. The choice of the best med ium of communication must take many factors into account.

e Try this A marketing manager for a sweet manufacturer wants t o send a message to the owners of the 25 reta i l shops that sel l the firm's product. The message g ives deta i l s about an ex�it ing new product with colourfu l packaging and a new brand n�me.

a) I s this an example of interna l or externa l commun ication? Expla in your answer briefly. [2 marks]

b) Would you advise the manager to use a telephone ca l l to every shop owner, an e-ma i l message to each shop, or a video sent to al l shop owners p lus posters? Justify the method of commun ication you choose.

[8 marks]

c) 'As my busi ness has expanded to over 400 workers, I find it more and more d ifficult to commun icate with staff. They just do not read my notices. I th ink I wi l l send them a newsletter each week,' the managing d i rector of a la rge su it-mak ing company to ld h i s secretary. Expl a in two possib le barriers to com munication resu lting from using e ither notices on boards or newsletters. [6 marks]

51 •

N IT 1 3 M ot ivat i on at work

Key objectives • To understand the different motivation theories e To understand what n1otivates workers e To know about the different types of payment methods and

other ways workers can be motivated e To understand how to choose suitable ways of giving job

satisfaction to different types of work e To understand different styles of leadership

Key definitions

Tay lor

Money is the main motivator Motivation Theories (pay more money to increase motivation)

McGregor identified two types of manager - those who bel ieve i n Theory X and those who bel ieve in Theory Y. a = self-actua l isation

b = esteem needs Theory X The average person does not l ike work. Workers must be constantly sup�rvised so they wi l l work . Motivation is from externa l factors, e .g . pay schemes where the workers are paid more for increased output

Term

Motivation

(a) Monetary rewards

• 52

Theory Y c = socia l needs d = safety/security needs e = physio log ical needs

The average person is motivated by i nterna l factors. To motivate workers, you need to find ways to he lp workers take an interest in their work, e .g . g ive rewards/incentives

Progress up the h ierarchy (from e to a) satisfy/ach ieve one level, then can move to the next leve l . Don't necessar i ly have to pay more but can fi nd d ifferent ways to motivate workers as they move up the levels

Description

Reason why workers want to work hard and work effectively for the business.

Wage: payment for work, usua l ly paid weekly. Can be ca lcu lated by the number of hours worked (ca l led time rate) and pa id overt ime or can be paid depend i ng on the quantity of products made (ca l led piece rate).

Examples

Motivation can be increased _by: (a) monetary rewards (b) non-monetary rewards (c) introducing ways to g ive job

satisfact ion.

$ 1 0 per hour p lus overt ime

$ 1 0 per product produced

Motivation at work • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Term Description

Salary: payment for work, usua l ly paid month ly. In addition, some sa laried workers a lso get commission pa id (more pay the more goods they sel l) or profit sharing (share of the profits paid to employees) or bonus ( lump sum paid to workers if they have worked wel l) or performance-related pay (pay which i s related to the effectiveness of the employee) .

Examples

$ 1 0,000 per year

(b) Non-monetary rewards Sometimes ca l l ed fringe benefits. These are extra benefits g iven to employees in add ition to thei r pay.

Chi ldren's education fees paid, d iscounts on the firm's products, hea lth ca re fees paid, free accommodation, company car.

(c) Job satisfaction

Leadership styles

The enjoyment a worker gets from fee l ing that they have done a good job. There a re three main ways to motivate workers to be more committed to the i r job and work more effectively:

Job rotation (swapping workers round and only doing a specific task for a l im ited t ime before swapping round aga in) .

Job enlargement (extra tasks a re added to the job to make it more i nteresting - they shou ld be at a s im i lar ski l l l evel).

Job enrichment (adding tasks that requ i re more ski l l and/or responsib i l ity) .

Good management and leadersh i p style are important for motivat ion. A good leader is someone who can inspire and get the best out of the workers. There are three ma i n types of leadersh ip style: autocratic, la issez-fai re, democratic.

Pack ing for an hour, fi l l i ng conta iners for an hour, l abe l l i ng for an hour, etc.

Warehouse worker unpacks goods, sorts orders, stacks shelves, picks orders, etc.

Hotel receptionist answers the telephone, deals with enqui ries, takes bookings, word processes letters, etc. Autocratic leadersh ip (manager i"n charge and g ives orders) . La issez-fa i re leadersh ip (manager g ives broad obJectives and leaves the workers to organ ise their own way of ach ieving these objectives) . Democratic leadersh ip (manager gets workers involved i n the decis ion making).

Sample questions and answers Sample questions 1) Why might improved motivation of employees increase

productivity? [ 4 111arks J

Marks 1 mark for knowledge that if motivation is high then the desire to achieve goals is higher; 3 marks if there is a clear linkage between increased motivation and the increase in peiformance.

Student's answer As more workers are motivated then they will all be happy to come to work every day, thus reducing absenteeisn1 . If people are n1ore n1otivated, they will work harder for the business to their best ability to try to produce as n1any goods or services as possible. Also , if there are pron1otion opportunities , they will try to i1npress the manager and as a result production will increase .

53 •

UNIT 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . · - · . . . .

• 54


Marks

Student's answer


A good answer with several reasons given as to why productivity might increase . Full marks .

2) Explain one method that a business could use, which might increase the motivation of its workforce. [3 marks]

1 mark for the method; 2 marks for explaining the impact on motivation.

Job satisfaction - the workforce needs to be satisfied with their jobs by having better working conditions, knowing there are chances of promotion, and good wages . Job rotation helps to in1prove job satisfaction - a group of employees divide themselves and take shifts at certain times .

Only one method can be rewarded, so 1 mark . The other methods were not needed and none of the methods was explained.

3) The graph shows the weekly wages paid to production workers at Mimmus plc .

Wages per week

$400

1 00

Output 200

i) Mimmus plc pays its workers using the paytnent method shown in the graph above . What method of payn1ent is it using? Explain your answer. [3 n1arks]

Marks 1 mark for identifying a set amount of wages paid up to art output of 1 00 units; 2 marks for explaining that the piece rate is then used: that is, the more output produced above 1 00 units, the more wages are paid.

Student's answer The workers are paid $200 per week no n1atter how tnuch _they produce. After that, piece rate is paid.

Try to mark this yourself- the examiner's marks and comment are on page 1 04.

ii) Calculate how much the worker will earn if he or she produces 1 50 units of output. [2 tnarks]

Marks Correct answer 2 marks; 1 mark if correct method, but incorrect answer.

Student's answer $200 + (50 X $2) = $300

Try to mark this yourself- the examiner's marks and com malls are on page 1 04.


Error

' Increasing pay wi l l a lways motivate workers to work harder . '

Why it i s wrong

I ncreas ing pay can improve motivation, but it wi l l not work every t ime and businesses may need to fi nd other ways to motivate workers.

•

Motiva tion a t work • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Error

'Time rate is paid at a set period of t ime, for example, each week. '

'P iece rate is where workers get a set amount of pay and then are paid more if they produce more.'

'Job en largement is when more tasks are added to someone's job descr iption and they need extra tra in ing to do the extra more d ifficu lt tasks.'

Why i t i s wrong

Time rate is the amount paid per hour worked and may be paid weekly, but so may piece rate. P iece rate refers to wages being re lated to the output produced and does not refer to a set amount paid whether the worker produces more or not. Job en largement i nvo lves addit ional tasks being added to the job but they should be of a s im i la r ski l l leve l . If they a re more d ifficult tasks then this is job enrichment.

e Try th is Patel Fashions is a reta i l business which sel l s women's c lothes. I t employs 1 5 sa les staff who work i n the shop and five more who work i n the offices. There is one shop manager who is in charge of the business. Each of the sa les staff has a specific job and they on ly do this one task. For example, some just serve customers at the pay desk, some look after the fitt ing room, and others look after the c lothes on d isplay. Employees keep leaving and the shop manager regularly has to advertise for new employees. ' I do not l i ke having to spend so much time interviewing appl icants for sales assistant jobs. I wish the employees would not keep leaving, ' said Marie, the shop manager.

a) Discuss the d ifferent f inancia l and non-fi nancia l benefits the store manager cou ld use to improve motivation at the shop, in order to prevent workers from leav ing so regu la rly. Which would be the best method for her to employ and why? [ 1 2 marks]

Examiner's tip .I Explain the advantages and disadvantages of different financial and

non-financial methods o f motivation. Select one method and explain why you think it is the best one for Patel Fashions to use.

b) Would job rotation be the best method for Mar ie to use in order to increase job satisfact ion? Exp la in your answer. [8 marks]

Examiner's tip ./ Explain how Patel Fashions could use job rotation, job enlargement and

job enrichment. Say whether you consider job rotation to be the best method and why.

c) State which management style (democratic/autocratic/la issez-fa i re) you would suggest for i) Theory X managers and i i) Theory Y managers. Expla in your choice. [6 marks]

' 5 5 •

N IT 1 4 Recru i t m e nt, t ra i n i n g a n d h u m a n reso u rces

Key objectives • To understand the role of the hunlan resources departnlent e To understand the recruitment and selection process e To appreciate the different types of training e To know the difference between redundancy and disn1issal

Key definitions

job ana lysis • I

i nduction tra in ing

Term

Job analysis

Job description

Job (person) specification

Internal recruitment

External recru itment

• 5 6

The recru itment a n d selection process

job description I • I job specification

select suitab le i nterviews and appl icant se lection tasks

(e.g . ski l l or aptitude tests)

Description

Identification of the tasks and responsib i l it ies to be ca rried out by the person doing the job.

The tasks, duties and responsib i l it ies someone wi l l need to ca rry out as part of a specific job.

The requ i red qua l ifications, sk i l ls, personal qua l ities, etc. for a specific job.

Vacancy is f i l led by a person who is an exist ing employee.

Vacancy is f i l led by a person who is not an exist ing employee and wi l l b e new to the bus iness. 't

I • advertise the vacancy

send out app l ication forms and shortl ist suitab le app l icants

Examples

A receptionist leaves a company and when Human Resources looks at the job description, it is rea l ised that some of the tasks a re no longer needed . However, the business does need someone with more IT sk i l ls . The reception ist's job descr iption therefore needs to be rewritten . The reception ist's job descri ption now incl udes process ing orders onto the computer. The reception ist is not requ i red to answer as many queries because a new te lephone system now does th is . The reception ist's job specification wi l l need to inc lude IT ski l ls in addition to the usual qua l ifications and sk i l l s of a receptionist. Shop assistant is promoted to supervisor. The job is advertised on the company notice board or a large business may have a company newspaper or intranet. A new store manager has been appointed who currently works for another shop. The job was advertised in loca l newspapers, nationa l newspapers, specia l ist magazines and journa ls, recru itment agencies or centres run by the government (job centres) .

Recruitment, training and human resources • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Term Description Examples

Induction train ing An introduction to the business for a new employee.

New employee is shown round the busi ness, i ntroduced to other workers, g iven Hea lth & Safety instructions, g iven information on ru les and regulations of the business.

On-the-job training Tra in ing is g iven at the p lace of work by watch ing another, more experienced employee doing the job.

A production l ine worker is shown what to do by another experienced production l i ne worker.

Off-the-job train ing Tra in ing is g iven away from the p lace of work itself. Can be at a d ifferent p lace such as a co l lege or could be at the bus iness's s ite, but in a d ifferent bu i ld ing .

In a classroom us ing lecture, ro le p lay, case studies, or computer s imu lations.

Redundancy/retrenchment The shedd ing of employees because the business changes.

The busi ness introduces new technology or closes a factory, therefore fewer workers a re needed.

Dismissal The employee is no longer employed because he or she is unsatisfactory in some way.

An employee is sacked because he or she is caught stea l i ng stock.


Sample questions

Marks

Student's answer


1) Why do businesses carry out a job analysis when an e1nployee leaves? [4 marks]

2 marks for giving reasons for a job analysis to be drawn up; 2 marks for explaining why these reasons are important to the business .

A business carries out a job analysis to see whether it needs to replace the worker with someone who can do exactly the san1e job . After that, i t will draw up a job description outlining all tasks and duties that the job involves and then a job specification, which states the skills and qualifications that the applicants 1nust have .

The first sentence attempts to answer the qt �estioll , but the rest (if tlze response does not directly answer it . The candidate needs to dismss i11 m ore

detail why a job analysis is carried out and an example li'O l l ld luwe helped

to explain the answer. Drawing up a job description would then follow, but only when it has been decided exactly what the job must irwolve ajter the

job analysis is complete. 1 mark .

2) CDF Ltd has just introduced new technology into the business . It finds that its employees do not have the appropriate skills needed to operate this new equipment.

i) Why n1ight this be a problen1 for CDF Ltd? (4 marks]

Marks 2 marks for problems stated; 2 marks for explain in'-!? the problems.

Student's answer If the workers do not have the correct skills then training will be needed. The costs of training and/ or recruiting new staff can be very high . In addition, while the training takes place, the output

57 •

UNIT 1 4 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

• 58


of CDF Ltd is likely to decrease because the workers are either co-operating with trainers or are the trainers then1selves . Also , if en1ployees cannot operate the new technology they n1ight fear that they will lose their job and therefore morale tnay be low.

A good answer -full marks. Three problems are stated m1d then explained as to why they are a problem for the business. Only two problems were needed for full marks.

ii) How would you suggest that CDF Ltd deals with this problem? [6 n1arks]

Marks 3 marks for limited suggestions 11ot really explained; 3 further marks if suggcsti011s are explained.

Student's answer I suggest that it trains some of its employees straight away to operate the new technology so that they do not spend titne once the machinery has arrived. It could also advertise for new employees who are already trained, but this would mean that some of the current workers would need to be sacked.



Error

'A job descri ption states the qual ifications needed for a pa rticu lar job. '

'On-the-job tra in ing does not cost anyth ing because an exist ing employee tra ins the new employee. '

'On-the-job tra in ing is suitab le for a ski l l ed worker, for example, an accountant.'

'Off-the-job tra in ing is a lways away from the business's prem ises . '

W h y it is wrong

The job descri ption outl ines the duties that are involved in the job. A job specification outl i nes the qua l ifications and ski l ls that a re needed to ca rry out the job. On-the-job tra in ing does cost money because the experienced employee cannot work at the usual rate whi le showing the tra inee what to do. The employee wi l l a l so need to keep watch ing the tra inee to make sure he or she is doing the job properly. Th is means the company is paying the experienced worker, but he or she is not producing the usual quantity of goods. On-the-job tra in ing is only r�a l ly suitab le for unski l led or semi-ski l led workers. An accountant would need to be tra ined at col lege for most of the time and not just at h is or her p lace of work. There wou ld be i nsufficient time whi lst working to go over al l the information requ i red to become fu l ly qua l ified. Off-the-job tra in ing is away from the p lace of work itse lf, but can sti l l b e on the same site.

Recruitment, training and human resources • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •• • • • • • • • • • • • • • • • • • • • • • • •

e Try th is a) Suggest three reasons why employees m ight leave their job. [3 marks]

b) If a lot of employees left every year, why might this be a problem for the business? [6 marks]

Examiner's tip ./ Include why they are lea ving, costs of replacing them, training, morale.

c) Why do businesses carry out induction tra in ing? [ 4 marks]

d) The Roya l Garden is a hotel in the centre of a city. It employs many workers in the restaurant and the department which c leans and serv ices rooms. Most of these workers have few ski l ls . I n the restaurant there are a lso tra ined employees who work in the k itchens prepar ing food . i) The Roya l Garden wants to i ncrease the number of restaurants it has

and therefore needs to employ more staff to work i n the k itchens. Discuss whether it shou ld use interna l or externa l recru itment for the new chefs to work i n the restaurants. [ 1 2 marks]

Examiner's tip ./ Explain the advantages and disadvantages of internal and external

recruitment. Make a judgement as to which would be the better one to use and why.

i i) The Roya l Garden has recru ited severa l wa iters and waitresses to work in the new restaurants. What type of tra i n i ng wou ld you suggest the management use to tra in them? Justify your choice.

[5 marks]

Examiner's tip ./ Choose a type of training, either on-the-job or off-the-job, and explain

why it would be suitable to train these low-skilled employees.

59 •

N IT 1 5 E m p l oyee a n d e m p l oye r assoc i at i o n s

Key objectives • To recognise the different types of trade unions

Key definitions

Term

Trade un ion

Craft union

General union

Industrial union

White-collar union

Employer associations

Collective bargaining

• 60

e To understand how trade unions benefit ernployees and their role in businesses

e To understand the process of collective bargaining e To know what happens when conflict arises and the different

types of industrial action e To understand the role of employer associations e To know how conflict can be avoided or solved

Description

An organ isation formed by a g roup of workers, which represents their i nterests. The reasons for jo in ing together include strength in numbers, negotiating pay on beha lf of its members, representing workers in gr ievances with management, advice if d ismissed/made redundant, advice if unfa i rly treated, improved working cond itions. Represents a part icu lar type of sk i l led worker. Represents workers from a variety of trades and industries.

Represents a l l types of workers in a pa rticu lar i ndustry. Represents non-manual workers.

An organ isation formed by a group of employers to g ive benefits to its members. The reasons for jo in ing together i nc lude strength in being a large g roup, acts as a pressure g roup, represents the employers and negotiates with trade unions, shares ideas amongst the members, sometimes organ ises d i scounts for its members if buying in bu lk . Negotiations between the management of a business (or severa l busi nesses) and a trade un ion (or severa l trade un ions) on pay and cond itions of employment.

Examples

National Un ion of Teachers (NUT) . National Un ion of Ra i l, Maritime and Transport Workers (RMT).

An e lectric ians' un ion .

Sk i l led and unsk i l led workers in a un ion wh ich represents workers in d ifferent i ndustries. A un ion which represents a l l workers in the m in ing i ndustry. A un ion which represents office workers. Employers' Organ isation for local government. Un iversities and Col leges Empioyers' Association.

The management of a busi ness negotiates pay rates with the trade un ion which represents the employees.

Employee and employer associations • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Term Description Examples

Industrial action Action that may be taken by a trade un ion to put pressure on the management when i n negotiations. It i nvolves halt ing or decreasing

• Strike (employees refuse to work) .

Worker participation

production. ...

Employees contribute to the decision-making process in the business.

• Picket ing (employees who are tak ing industr ia l action stand outs ide their p lace of work to prevent or protest at goods or people going in and out of the bus iness) .

• Work to ru le (ru les are strictly obeyed so that work is s lowed down).

• Go slow (employees do their normal work, but more slowly) .

• Non-co-operation (workers refuse to have anything to do with new working practices they d isapprove of) .

• Overt ime ban (refusa l to do overtime).

Worker d i rectors, works counci l s, qua l ity ci rcles, more democratic styles of leadersh ip .

Sample q uestions and answers

Sample questions 1) Explain why workers join trade unions . [6 n1arks]

Marks

Student's answer


Up to 3 marks for stating the benefits of trade union membership; 3 marks for explaining why these are benefits to employees.

If the worker joins a union then he or she will be part of a large group of employees, which has extra bargaining power when negotiating pay or conditions with the 1nanagen1ent. Pay should be better and if an employee is treated unfairly then the union will give him or her advice.

The first benefit is explained but the other two benefits are o11ly stated and not explained. Therefore 416 marks were awarded.

2) Toys Galore plc manufactures children's toys . The c01npany produces dolls and dolls' clothes . The toys are sold all over the country and the business also exports 25% of its output. The workers want a wage increase, but the 1nanagen1ent has said that this is not possible. i) Explain three types of industrial action that the union can

advise the workers to take. [6 n1arks]

Marks 1 mark for each of the three types of industrial action; 1 mark for explanation of each type of industrial action .

Student's answer The workers could go on strike , which would 1nean that they would stop work and so no output would be produced. They could then picket the factory by standing outside the gates and trying to stop any delivery lorries or workers going into the factory. This would mean that the business could not produce any toys and the managen1ent would be n1ore likely to give in to the union's demands. They could also have an overtin1e ban.

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UNIT 1 5 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •• • •

• 62

Examiner's marks 5 I 6 marks were awarded. 3 for the three types cif industrial action and and comments 2 marks for the explanation of the first two types of industrial action . The

third type was not explained.

ii) Toys Galore plc recently introduced worker participation by having worker directors. Why might this help to avoid conflict between the workers and the n1anagement of Toys Galore plc?

[5 n1arks]

Marks 2 marks for stating the beniftts of w�rker participation; 2 marks for explaining why it might help to avoid conflict; 1 mark for applying it to Toys Galore pic.

Student's answer Toys Galore plc produces a lot of products and also exports then1 . Many decisions will have to be made which will affect the workers . The worker directors will help to increase the flow of information to the other directors concerning the workers ' feelings about any changes that are proposed. If these yiews are taken into account then there is less chance of a decision being n1ade that the workers will not be happy with .

Try to mark this yourself- the examit-zer' s marks and comments are on page 1 05.


Error

'Trade un ions represent a l l workers. '

'Trade un ions a lways cause trouble and ca l l the workers out on str ike. '

'A str ike i s when a l l the employees stop work and don't come back to work unti l the d ispute is sett led . '

'Worker participation is when employees get to tel l the management wha� to do. '

Why it is wrong

Trade un ions on ly represent the workers who have jo ined the trade un ion and not a l l the other workers. Trade un ions do ta l k to management in some cases and try to find ways to increase productivity so that there wi l l be an improvement in the working cond itions for their members. On ly trade un ion members wi l l go out on stri ke, not the other workers. Also, str ikes can be for a short period of time, such as ha lf a day, just to make a point. They do not necessar i ly go on for very long as workers do not get paid for the time they are on str ike. They on ly get some pay from the un ion if it has sufficient funds to pay them some money. Worker partic ipation is when workers contribute to the decis ion-making process in some way. They do not take it over.

Employee and employer associations • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

e Try th is a ) Match the type of trade un ion with the example . [4 marks]

Types of trade un ion

Craft un ion Industr ia l un ion Genera l un ion White-col lar un ion

Examples

i) The members are a l l secretaries i i) The members a re a l l different types

of workers in the min ing i ndustry i i i) The members are unsk i l led and semi

sk i l led workers i n severa l d ifferent industries

i i i) The members a re unski l led and semisk i l led workers i n severa l d ifferent industries

iv) The members are a l l sk i l led workers

b) Exp la in why businesses jo in employer associations. [6 marks]

Examiner's tip ./ Explain three benefits to businesses of joining an employer associa tion.

c) The workers at P and D ltd a re unhappy because the management wants to change the hours they work. The management wants the workers to work four days at 1 0 hours per day i nstead of five days at 8

hours per day. Th is is so that the workers can be asked to work overtime on the fifth day. Sa les of the business's products have been i ncreasing rap id ly and more output is needed. i) The un ion wants the workers to take industr ia l act ion. Should they

go on stri ke or i ntroduce an overt ime ban? Exp la in your answer. [6 marks]

Examiner's tip ./ Explain the advantages and disadvantages of strike action and an

overtime ban and then decide which would be more effective for the workers at P and D Ltd and why.

i i ) The management of P and D ltd has been th inking of introducing worker partic ipation . Suggest three d ifferent ways they cou ld use to do this . [6 marks]

Examiner's tip ./ Explain three ways of ha ving worker participation, for example, worker

directors, works councils, quality circles, or more democratic styles of leadership.

63 •

N IT 1 6 Th e m a rket a n d m a rket i n g

Key objectives • To understand why marketing is important to a business

Key definitions

By income group/socia l group (A, B, C1 I C2, D, E)

By gender (ma le/fema le)

By use of the product (domestic or busi ness use)

Term A market

Product-orientated business

Market-orientated business

Marketing budget

Marketing mix

• 64

e To know the difference between a product-orientated business . and a market-orientated business

e To understand what is meant by market segn1entation e !o understand why and how a business segtnents its tnarket e To know what are the main elements of the n1arketing n1ix

Marketing The management process which identifies customer wants, anticipates their future wants and then goes about satisfying them profitably

Market segmentation

Market ing he lps a busi ness to increase: its sa les revenue; profits; market share {or at least ma inta in it) . It a l so may want to: improve the image of the product; enter a new market or market segment; deve lop new products; improve exist ing products

By age {ch i ldren, teenagers, young adu lts, middle aged, old)

The market i s d ivided up i nto ....,_. __ ,_. By reg ion {dry/wet parts of groups of consumers who the country) have sim i lar needs

Definition Where buyers and sel l ers come together to exchange products for money. One whose ma i n focus of activity is on the product itself. One which carries out market research to f ind out consumer wants before a product is deve loped and produced. A f inancia l plan for the marketing of a product or product range for some specified period of t ime. It specifies how much money is ava i lab le to market the product or range, so the marketing department knows how much it can spend. Describes al l the activities which go i nto marketing a product. They are often summarised as the 4 P's: Product, Price, Promotion and Place.

By l ifestyle {si ng le/ married/with ch i ldren/etc.)

Example Fru it and vegetab le market

A business which i nvented a new kitchen tool A business which makes chocolate bars f ind ing out what type of chocolate bar appea ls to consumers

$500,000 to market a new chocolate bar. The marketi ng department wi l l then decide which marketing activities it wi l l use to rea l ise its target sa les over a specified t ime period .

Product - new choco late bar for sma l l ch i ldren Price - $0.30 Promotion - advertised on TV dur ing chi ldren 's programmes Place - sold in supermarkets

The market and marketing • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •


Sample question C & C plc produces washing powder. It has been in business for many years . It started by selling just one type of washing powder, but now it sells many different brands all ai1ned at different groups of customers (low-income, families with babies, sensitive skin, sports-playing families, people who care for the environment, etc . ) . When C & C plc was going to introduce a new brand of washing powder it would carry out market research first to find out what consumers wanted from their washing powder. The business would then design a new product to meet these needs . C & C plc has been very successful and seen its sales grow continuously each year.

Marks

Student's answer


a) Does C & C plc segment its market? Explain your answer. (2 marks]

1 mark if correctly identifies what is meant by segmenting the market; 1 mark for explaining that C & C plc segments its market.

Yes - C & C plc sells products to different custon1ers.

The answer is vague. They could have gained the second mark by making it clear that the products are different and targeted towards different customers . 1 mark.

b) Why does C & C plc do this instead of selling a single product to the whole market? [ 4 n1arks]

Marks Explaining why segmentation may be a way of meeting wstomer needs awl increasing sales, 1-2 marks; 1-2 marks for applying this to C & C plc.

Student's answer Some businesses aim their products at just one group of custon1ers and not the whole market because this means that the product will satisfy their individual needs. Each brand of C & C washing powder can be bought by a different type of consun1er, for example, different income groups or families with babies . Each product is made to appeal to just one of these groups. If each product was aimed at all the groups then it probably wouldn't n1eet the needs of any particular customer and wouldn't sell so well . Segn1enting the market increases sales of the product and, therefore, n1ay result in greater profits .

Examiner's marks A clear understanding of market segmentation, wlu'clt is applied to C & C and comments plc. Full marks .

c) Do you think C & C plc is a product-orientated business or a market-orientated business? Explain your answer. (2 nurks]

Marks 1 mark for saying it is a market-orientated business plus 1 mark for explaining why.

Student's answer C & C pic is a market-orientated business as n1arket research is carried out to find out what the cust01ner wants and then it nukes the new product according to what the custo1ner wants . If the business was product orientated then it would develop a new product and then try to sell it to consun1ers .

65 •

UNIT 1 6 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

• 66


Tlze cattdidate explains that it is a market-orientated busit1css, but docs fWt need to add the second sentence . 2 marks.


Error

'A market is in a s ing le p lace . '

'Marketing is just about advertis ing the product. '

Deve loping a marketing mix that does not l ink together.

Why it is wrong

A market does not have to ·be a p lace. For example, it cou ld be goods so ld over the i nternet. Marketing is much more than just advertis ing or promoting a product or service. It inc l udes consideration of the channel of d i str ibution, the product itself, prici ng and packag ing. A marketing m ix must be clearly l inked together. For example an expensive h igh-priced product shou ld have packag ing that g ives the impression of a h igh qua l ity product and it shou ld be so ld in shops which are used by h ighincome groups. Promotion needs to emphasise the h igh qua l ity of the product and ensure that it i·s advertised i n places seen by h ighi ncome groups.

e Try this Ncube G iftware Ltd manufactures wooden g ift items which i t exports to European markets. The d i rectors want to expand production. Bafana, the marketing d i rector, says 'The marketing department wi l l p lay a very important role in he lp ing the business to expand. '

a) Exp la in three poss ib le objectives of the market ing department at Ncube G iftware Ltd . [ 6 marks]

b) What are the four e lements of the marketing mix? [4 marks]

c) Do you th ink it is important for the four e lements of the marketing m ix to l i nk together? Expla in your answer. [8 marks]

Examiner's tip ./ Try to explain why it might be important to link the elements together

and what might happen if the business does not.

N IT 1 7 M a rket resea rc h

. Key objectives • To understand why market research is needed e To understand the difference between prin1ary and secondary

research e To describe how to carry out market research taking into

account sample size, type of sampling method, location and timing of the research

e To evaluate whether the information gathered is accurate

Key definitions

Posta l

\ < Street

Face to face

t Door to door

F inance dept Sa les data ' • Customer service

Interviews < Telephone

Questionnaires

l nternf sources ,.....--department

Primary research

t I nternet

F ie ld research - fi rst-hand information Orig ina l data gathered for a specific purpose by the busi ness

Secondary research Desk research - second-hand i nformation Previously publ ished data gathered orig ina l ly for another purpose

Government Consumer panel Observation Experiments / reports/

Term

Market research

Quantitative data

Qual itative data

Random sample

Quota sample

External sources statistics

/ l "' Market research reports Tratle journals Newspapers

Defin ition

A business finds out consumer wants before a product is deve loped and produced. Information about the quantity of someth ing . Information about opin ions or judgements. Every member of the population has an even chance of being selected (for example, for a quest ionnaire or i nterview) . People are selected on the basis of certa in characteristics, for example, age, gender, income.

Examples

Primary research and secondary research .

How many customers buy cola .

Why customers l i ke cola .

People a re selected at random, for example, every 1 OOOth person in the te lephone d i rectory.

A certa i n number of peop le are selected for i nterv iew or to answer a questionna i re. For example, ha lf should be ma le and ha lf should be female .

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UNIT 1 7 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •


• 68

Satnple question Khan pic produces chocolate bars and only sells then1 in its hotne country. It produces many different brands of chocolate bar which have been selling well for several years . However, one of its brands, called 'Bigga Bars ' , has seen its sales fall over the last year. Karl, the marketing manager, says 'We must do something to increase total sales revenue from all our products . We n1ust carry out primary and secondary research . '

Marks

Student's answer


a) Why n1ight Khan Pic want to carry out n1arket research? [ 4 tnarks]

1-2 marks for listing one or two reasons why market research might be carried out, for example, to find ou t why sales have fallen; 1-2 additional marks for explaining these reasons .

Khan pic might carry out market research to see why its product was not what customers wanted. It wants to find out why its product did not meet customer needs , for exa1nple , whether the price is too high, or whether any new products have been launched onto the market. When it knows what is wrong with Bigga Bars, it can decide how to make them more appealing to customers or maybe withdraw the product and launch a new one if it is in the decline stage of the product life cycle .

This was a good answer with reasons given for carrying out research . These reasons were also explained well. 4 marks .

b) What is the difference between primary and secondary research? [4 marks]

Marks 1-2 marks for stating what is meant by primary research or secondary research; 1-2 additional marks for explaining both primary and secondary research and indicating how they are different.

Student's answer Primary research is first-hand information, whereas secondary research is second-hand information.

Try to mark this answer yourself- the examiner's marks and comments are on page 1 06.

c) Describe how Khan pic should carry out prin1ary rnarket research before deciding whether to sell a new chocolate bar in a new overseas market. [ 6 n1arks]

Marks Up to 6 marks for describing the process of carrying out a method of primary research . for example, (The business could design a questionnaire (1J . This would need to be tested to see whether the q11estions are gathering tlze correct i1iformation the business requires [2}. Care should be taken to ask questions appropriate to the overseas market [3}. The questionnaire should then be carried out after deciding whether it wants a random sample or quota sample [4}. It also needs to decide the sample size to ensure the

Market research • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Student's answer


accuracy of the questionnaire [5}. The time, day a11d place to carry out the questionnaire will be chosen and finally the results will be collated and analysed [ 6}. '

Pri1nary research is about finding out first-hand infomution. The company could carry out a questionnaire door to door. .Before the product is sold overseas, the company needs to find out about the market and the potential customers. It can then advertise in places where the product will sell and this will mean a lot of sales and increased profits.

The candidate has misread the question and said that the company could carry out a questionnaire door to door. The other points are correct, but do not answer the question and therefore this would only gain 1 1nark . The rest of the points do not describe how to carry out research .


Error

'Primary research is i nformation a l ready ava i lab le . '

' Information gathered by pr imary research is a lways accurate. '

Descri b ing the advantages and d isadvantages of pr imary research when asked to descr ibe how it is carried out.

Why it is wrong

Secondary research is i nformation that i s a l ready ava i lab le and gathered for another purpose whereas primary research is orig ina l research carried out for a specific purpose. Poor questions, bad sampl ing techn iques and carry ing out the research i n the wrong place lead to i naccurate resu lts. Need to describe the process of how pr imary research is carried out rather than d iscuss ing this as a method of research .

• Try th is a) G ive two advantages to a bus iness of using primary market research . [4 marks]

b) What sources of secondary data are ava i lab le for a busi ness to use if it wanted to sel l a new product in a new overseas market? [3 marks]

c) If pr imary market research is carried out, exp la in what the business can do to improve the chances of getting accurate i nformation . [4 marks]

69 •

N IT 1 8 Prese ntat i on of i nform at i on

Key objectives • To know how to draw graphs and charts frotn business data e To know how to interpret graphs and charts


• 70

Sample question XYZ Ltd carried out a questionnaire and here is one of the answers to a question:

Marks

Student's answer


What age group are you in? Number of people 0-20 1 0 2 1-35 36-50 5 1-65 66 +

20 40 20 1 0

a) Using this information, draw a graph or chart to show the ages of the people who answered the questionnaire . [5 marks]

1 mark for title; 1 mark for each labelled axis; 2 marks for accurately plotted graph/chart.

45

40

3 5

3 0

2 5

20

1 5

1 0

5

o �� 0-20 2 1 -3 5 36-50 5 1 -65 66+

The candidate scored 2 marks for a correctly plotted bar chart . 17ze axes were not labelled and there was no title. Total = 2 I 5 marks .

b) The graph shows the average wage levels of etnployees in the company in 2003 and 2004 .

Average annual wages XYZ Ltd 2003 and 2004

1 6

1 4

1 2

0 1 0

g 8 �

6

4

2

0 2003 2004

D Male • Female

Presenta tion of informa tion • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

i) Identify the n1ain changes that occurred between 2003 and 2004. [3 n1arks]

Marks Identifying that the wages of both men and women increased = 1 mark. Giving the changes in figures = 2 marks .

ii) If the company employed 30 men in 2003 and 35 tnen in 2004 calculate the % change in the total male wage costs between 2003 and 2004 . [ 4 marks]

Marks Total wagesfor both years calculated = 2 marks . Percentage increase correctly calculated = 2 marks . Up to 3 marks can be awarded for correct method even if there is an error in the calculation .

Student's answer i) Both male and female wages went up. The average n1ale wage increased by $3 ,000, while the average female wage went up by $2,000.


ii) $ 1 2,000 X 30 = $360,000 $ 1 5 ,000 X 35 = $525 ,000 Increase 525,000 - 360,000 = 1 65 ,000 1 65 ,000/360,000 = 45 .83%

The candidate has completed all the answers correctly. Three points were identified - both male and female wages had increased and the increases were given. The second part was correctly calculated. Full marks .


Error

M iss ing off a t it le to a graph .

Not labe l l ing axes.

e Try this a) Us ing t h e i nformation i n t h e table below, "d raw a graph showing the sa les of the four main brands prod uced by this com pa ny. [5 marks]

D & D pic - Sales revenue ($mil l ions)

Brands 2002 2003 2004 Chocolate fig bars 3 5 8

Ca ndy bars 3 4 7

Sugar pops 4 6

Choco melts 4 5 8

b) The g raphs below show information a bout M ig ue l 's garden bus iness.

Sales Product A Sa les Prod uct B

Time

i ) Describe what the two graphs show.

Time

[4 marks] i i) Suggest one reason for the differences between the two graphs.

(See a lso U n it 1 9) [3 marks]

7 1 •

N IT 1 9 Th e m a rket i n g m 1x : p rod uct a n d packa g i n g

Key objectives • To explain why businesses brand products

Key definitions

Protects the product/can transport the product

Term

To improve sel l ing appeal

Brand name

Brand loyalty

Brand image

Product l ife cycle

Extension strategy

• 72

e To know what factors a business takes into account when branding a product

e To know why packaging is important e To understand the role that packaging plays in the 1narketing 1nix e To understand how to draw and label a product life cycle e To understand what happens to prices, profits, sales and pron1otion

as a product passes through the different stages of the life cycle e To explain how the life cycle can be extended

Packaging i s the physica l conta iner or wra ppi ng for a product

Displays i nformation about the product

Description

The u n ique name of a product which d istingu ishes it from other bra nds. It g ives the brand an identity of its own.

When customers keep buying a particu lar brand instead of a competitor's brand.

The image or identity g iven to a product whic;h m�kes it d ifferent to its com petitors' brands.

The stages a product wi l l pass through from its introduct ion, through its growth u nt i l it is mature and then fina l ly dec l i nes.

A way of extending the product l i fe cycle when it has reached maturity or saturation stage.

Su itab le for the product to f it i n/can eas i ly d ispense the product

Promotion of the brand image

Examples

Coca-Co la N ike Mars N issan

Customer kee ps buying Adidas shoes i nstead of N i ke.

Coca-Cola is drunk by people who are trendy and have fun .

T h e stages are: deve lopment i ntrod uction growth maturity saturation decl i ne.

I ntroduce a new improved vers ion (Piaystation 2). Use a new advertis i ng campaign . Se l l i nto new markets. Se l l through d ifferent outlets. I ntroduce new va riations of the orig ina l prod uct/service.

The marketing mix: product and packaging • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Sample q uestions and answers

Sample question Mr Patel owns and runs a sn1all private lin1ited cornpany called Patel Enterprises Ltd which 1nanufactures sportswear. The n1ain products are polp shirts, shorts and skirts for younger children who play tennis. The products all have the san1e brand nan1e, 'Tennis Tiger' . These are high quality clothes which are sold for a high price. The retail outlets which sell these products are specialist sportswear shops, but Patel Enterprises Ltd also sells its products on the internet. The range was launched two years ago and growth in sales has been rapid. However, over the last six n1onths sales have continued to increase, but the increase has been slower than in the previous two years .

Marks

Student's answer


a) Why does Patel Enterprises Ltd brand its products? [6 marks]

1-2 marks for displaying a knowledge of branding; 1-2 marks for applying this to the context of Patel Enterprises Ltd; 1-2 marks for explaining the advantage of branding.

A business brands its products to create a unique identity so that customers will be able to recognise it and buy the products again. 'Tennis Tiger' is the brand name for Patel Enterprises Ltd products . Customers will recognise the brand name and know that these products will be of good quality and it will n1ake them more likely to keep buying the products . Also , if there is a brand logo on the garments then customers will want to buy nutching polo shirts and shorts and so the business will increase its sales .

This is a good answer with more discussion than necessary to gain full marks. Knowledge of branding is clearly given along with a good application to this case. More than one advantage of branding is also included. Total = 6 I 6 marks .

b) What brand image would you suggest for 'Tennis Tiger'? Explain your answer. [ 4 marks]

Marks 1-2 marks for suggesting a suitable brand image; 1-2 marks for justifyin}<, the image in terms of young children .

Student's answer The brand in1age should appeal to the target audience . It needs to appeal to people who play tennis and so it should be sporty.

Examiner's marks This is a general answer. It does link to tennis and sport, but it does not and comments make clear how it would appeal to young children . The student cou ld have

discussed the tiger image being cuddly and fim, which would appeal to young children. Total = 214 marks .

c) What stage of the product life cycle do you think 'Tennis Tiger' garments have reached? Justify your choice . [3 n1arks]

Marks 1 mark for identifying that it has reached the maturity stage of the fife cycle; up to 2 marks for justifying why this is the case.

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UNIT 1 9 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

• 74

Student's answer


It has reached the maturity stage because sales are still increasing at a rapid rate.

1 mark for correctly identifying the stage, but no further marks as the student has not made it clear that sales are increasing at a reduri11J? rate of increase. Total = 1 13 marks .

d) The increase in the sales of 'Tennis Tiger' products has slowed in the last six months . What do you think the cornpany should do if sales do not increase any rnore? Explain your answer.

[8 111arks] Marks 1-2 marks for examples of suitable actio11 the lmsi11css rould take; 1-4

marks for showing advantages of these actions explained in terms of the business; 2 marks for justification as to what the lmsiHess should do .

Student's answer Patel Enterprises Ltd should increase their advertising of 'Tennis Tiger' clothes to make more consumers aware of the products . They could also run special offers where custon1ers could get a discount on a second garment after they had bought one. These initiatives should encourage sales and see an increase . They could also reduce their prices to encourage more sales, but this may mean using cheaper materials if they are to keep the san1e profits. A lower price could make consumers think that the garments are not of such a high quality and therefore sales might fall instead of rise . They could also try to sell the clothes in different retail outlets , for exatnple, supermarkets. However, this may not create the right brand itnage for the clothes . They could also try to sell then1 abroad.

Try to mark this yourself- the examiner's marks and commen ts are on page 1 06.

Com mon misconceptions and errors , · ·

Error

' Packag ing is just a conta iner for the product . '

' I n the matu rity phase of the product l ife cycle sa les fa l l . '

'After the satu ration phase of the product l ife cycle, a product's sa les wi l l a lways fa l l . '

Why it i s wrong

Packag ing is more than just a conta iner for the product. It can be used to re i nforce the brand ing of the product and promote it. The packaging often ma kes the product easi ly recogn isable on the shelves and attracts attention .

I n the maturity phase of the product l ife cycle sales sti l l i ncrease, but on ly s lowly.

After the saturation phase of the product l ife cycle, sa les wi l l fa l l if it moves into the decl ine phase. However, if the busi ness successful ly uses extension strateg ies then the l ife of the product wi l l be extended and sa l es may increase .

The marketing mix: product and packaging • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

e Try th is Peacock pic manufactures and sel l s soft dr inks. The main brand i t sel ls is bought by sports p layers. The outer packaging of the dri n k is p la in black and some customers have compla i ned that it is d ifficu lt to dr ink from the conta iner. The marketi ng manag er, Sheena, th i n ks that some changes need to be made to the packag ing to i mprove sa les of the drink .

a) What functions does packag ing perform for the sports dri n k produced by Peacock p ic? [5 marks]

Examiner's tip ./ Make sure you apply your answer to the sports drink in the case.

b) What factors shou ld Sheena take into account when chang ing the packaging for this sports d rink? [6 marks]

Examiner's tip ./ Do not describe the changes she should make.

c) Draw and label the stages of a typica l product l ife cyc le on a graph. [4 marks]

Examiner's tip ./ Do not forget to label the axes.

d) Prici ng is a very i mportant e lement i n the marketi ng m ix of a busi ness. How and why might a bus iness change its prices d u ring the stages of a typica l l ife cycle? (See a lso U n it 20) . [6 marks]

Examiner's tip ./ Describe the change and then say what should happen as a result of

the change.

e) Why do some products have much longer l ife cycles than others? G ive examples to i l l ustrate you r answer. [4 marks]

75 •

N IT 20 Th e m a rket i n g m 1x : p r 1 ce

Key objectives • To explain what affects demand and supply

Key definitions

Price

Market . ___. - - - - - - - - - - - - - - - - -pnce : I

s

Quantity

Pricing strategy

Cost-plus pricing

Penetration prici ng

Price skimming

Competitive pricing

Promotional pricing

Psychological pricing

Price e lastic demand

Price i nelastic demand

• 76

e To understand what is meant by elastic and inelastic demand for a product

e To explain what happens to den1.and for a product if the price increases or decreases when demand is elastic or inelastic

e To understand the different pricing strategies and explain when they would be suitable to use

s Supply is determined by the decis ions of producers: affected by price, the cost of producing the goods, taxes/subsidies, improvements in technology, c l i mate

D

Demand is determi ned by the decis ions of consumers: affected by price, price of substitute products, taste and fash ion, advert is ing, consumers' i ncome, price of complementary products

Defin ition

The cost of manufactur ing the product p lus a profit mark-up

When the price is set lower than the competitors' prices i n order to be ab le to enter a new market.

A h igh price is set for a new product on the market.

The product is priced in l ine with or just below competitors ' pr ices to try to capture more of the market.

When a product is sold at a very low price for a short period of t ime.

When part icu lar attention is pa id to the effect that the price of a product w i l l have u pon the customers' perceptions of the prod uct.

Demand changes by a greater proport ion than price change.

Demand changes by a sma l l er proport ion than price change .

Price charged

Cost = $ 1 00 + 50% profit Price = $ 1 50

Competitors' prices = $ 1 0 This price = $9 .50

New product price = $ 50 No near substitute on the market

Competitors' pr ices = $20-$23 This product price = $22

Competitors' prices = $ 1 0

Th is product = $ 7 for a l i m ited period of t ime

Price = $9.99

The marketing mix: price • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •


Sample question Luxury Leisure plc owns and runs several leisure centres in the capital city of country X. The centres are expensive to join, but are at a similar pric� to other luxury centres in the city . They want to encourage more people to become members , so have advertised a special low rate to join the leisure centre for a limited tin1e in order to encourage additional members . Last year Luxury Leisure plc put its prices up from $40 per month to $50 per month, but found that membership fell by 1 5%.

Marks

Student's answer


Marks

Student's answer


a) Identify two pricing strategies that are being used by Luxury Leisure plc . [2 1narks]

1 mark for each correct answer - competitive pricing and promotional pricing.

Competitive pricing and penetration pricing.

The first answer is correct, but the second one is not correct as the setvice is not new and not trying to get into a new market. Total = 1 rnark.

b) Explain one other pricing strategy Luxury Leisure plc could use and why it might use it . [3 n1arks]

1 mark for a suitable strategy; up to 2 marks for explaining why it nl l��lz t be suitable for this business to use.

It could use cost-plus pricing as this would ensure that all the costs were covered.

1 mark for a suitable method and 1 mark for the explanation . Total = 2 I 3 marks as the student did not go on to explain the answer in detail.

c) Using the information in the case study above, should Luxury Leisure plc have put its prices up fron1 $40 to $50 per n1onth? Explain your answer. [ 6 marks]

Marks 2 marks for identifying that demand is inelastic; 2 marks for explain ing the dfects of the change; 2 marks for making a jru�szcmc1 1 t .

Student's answer The price was increased by $ 10 , a 25% increase . This 111eans that den1and is inelastic . The business should have put its prices up, as this would 111ean that the company would increase its sales revenue and possibly its profits .


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• 78


Error

'Sugar is an ine last ic product . '

'Price sk imming is where the prod uct is pr iced be low the prices of com petitors . '

'Putt ing pr ices down wi l l a lways ga in increased sa les. '

Why it is wrong

As sugar is a basic necessity, demand for sugar cou ld be sa id to be inelastic. The product itself is not inelastic.

Price sk imming is where a new prod uct enters a ma rket at a h igh price. It is usua l ly a new invention, or a new development of an old .product, and therefore it can be sold on the market at a high price and people wi l l pay this because of the novelty factor.

Reduc ing prices wi l l someti mes cause sa les to fa l l if the product has an image of being h igh qua l ity. Customers may th ink that the qua l ity is lower as the price is now lower and not buy it.

e Try th is Acmo Oi l p i c is a m u lti-nationa l o i l company. I t extracts o i l , refi nes i t and a lso owns the petrol stations where its petrol is so ld . Many of the petro l stations a lso have shops that sel l food, dri n ks, maps and g ift items. The gift items a re a lso sold in many other loca l shops.

a) Would this business's revenue be l ikely to increase if it were to cut petrol pr ices? Exp la in you r answer g iv ing reasons. [4 ma rks]

Examiner's tip ./ Think about whether demand is elastic or inelastic. Would customers be

sensitive to price reductions or not, and would they buy a lo t more or would there be just a small percentage increase in sales ?

b) Often Acmo's shops reduce their prices of giftware at certa in times of the year. Why do you th ink they do this? [4 marks]

c) Discuss the factors that affect which pr ic ing strategy for g iftware this business uses? [8 marks]

Examiner's tip ./ Think about the factors that influence whether the business should use

competitive pricing, price skimming, etc. Examples of factors might include: nearby competitors; a t wha t stage of the product life cycle the products are; costs of production; whether product is high quality.

N IT 2 1 Th e m a rket i n g m 1x : p ro m ot i o n

Key objectives • To understand that there are four types of pronlotion and to understand when they are used

Key definitions

Term

Persuasive advertising

Informative advertising

Target audience

Customer service

e To understand the factors that affect the types of advertising to use

e To know what is meant by the target audience e To explain when to use the different types of prmnotion e To explain when to use personal selling e To explain the role of PR (public relations) in business e To know the importance of customer service

Advertisements I nc lud ing television, rad io, newspapers and magazines, posters/bi I I boa rds, c inemas, leaflets/d i rect mai l , i nternet

Personal sel l ing Goods so ld stra ight to the customer, for example, where customers may need advice or where the exact nature of the prod uct can va ry

Defin ition

Advertis ing or promotion which is trying to persuade the consumer that they rea l ly need the product and should buy it .

The emphasis of advert is ing or sa les promotion is to g ive fu l l i nformation about the product.

The people who a re the potentia l consumers of the product or service.

Concerned with keeping customers happy by making them fee l important and bu i ld ing a good re lat ionsh i p between the busi ness and its customers.

Promotional offers Price reductions, gifts, point-of-sale d isplay and ·

demonstration, after-sales service, free samples, competitions, money-off coupons

Publ ic relations This is concerned with promoting a good image for the business. Often ta kes the form of sponsori ng an event

Examples

' B uy XYZ - it's the best ! '

'XYZ is a new product a n d i t w i l l carry out the fu nctions five ti mes faster than the old product.'

Ch i ldren are the ta rget audience for toys.

G iv ing advice a bout the prod uct; de l iveri ng goods for consumers; provid ing cred it faci l ities; provid ing prod uct information; after-sa les service.

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• 80

Sample question Party Extraordinaire is a partnership business that was forn1ed five years ago . I t organises parties for young children for birthdays and other special celebrations. The business has been very successful and wants to expand. It currently advertises in local newspapers and puts up posters in local toy shops and children's clothes shops. Customers often use the business again and it also gets bookings from customers telling their friends about the business . It wants to expand into organising parties for adults .

Marks

Student's answer


a) Why does Party Extraordinaire advertise in this way? [2 n1arks]

2 marks for an · explanation.

Party Extraordinaire advertises in local newspapers because local people will use its service and see the adverts . It also puts up posters in toy shops and children's clothes shops, so again people with children are likely to go to these places , see the business's adverts and might therefore use its services.

A good answer. The student correctly identifies where the busi11ess advertises and why it should be effective, as the target audience will see the advertisements . Full marks .

b) Party Extraordinaire decides to expand into organising parties for adults . Suggest three suitable ways it could pron1ote the new service. Justify your choice. [9 n1arks]

Marks 1 mark for each suitable way of promoting the business (3 maximum); up to 2 marks for justifyit1g why each way would be effective i11 the context of this business (6 maximum) .

Student's answer Party Extraordinaire could offer a pron1otion whereby, if th� customer books one party, then a second is given at a reduced price. This would encourage customers to come back and book more parties . The business could advertise in the local newspapers, as local adults would see an advert there . Finally, custon1ers could be entered in a competition if they booked a party.


c) Party Extraordinaire is designing a new poster to put in toy shops. Discuss whether the poster should use mainly inforn1ative or persuasive advertising. [ 4 1narks]

Marks 2 marks for discussing the advantages I disadvantages of informative advertising; 2 marks for explaining the advatztages I disadvatztages of persuasive advertisi11g; 2 tnarks for making a judgement as to which one the business should usc .

Student's answer The poster could be persuasive, which would n1ean that the poster would make the parties sound really good and 1nake custo1ners want to book one. This type of advertising is effective when

The marketing mix: promotion • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •


people need to be encouraged to book a party which they n1ight otherwise not bother to do . Customers need to think that it is good value for money. I think they should use persuasive advertising, as it will encourage n1ore people to book parties .

2 marks for explaining the advantages of persuasive advertising and 1 mark for making a judgement. However, the student has not explained informative advertising and so full marks cannot be awarded. 3 I 6 marks .


Error

'Promotion on ly includes advertis ing . '

'Te levision is a lways a good way to advertise.'

' Increased advert is ing expenditure a lways i ncreases sales.'

'Personal se l l ing is where you have a shop assista nt serving customers. '

Why it is wrong

Promotion inc ludes advert is ing but a l so other types of promotion such as competitions.

Televis ion i s expensive and, depend ing on the t ime adverts are shown, they may not be seen by the target aud ience.

J ust beca use more money is spent on advert is ing does not mean that it wi l l be effective and persuade more customers to buy the product . The advertis ing m ight be in the wrong places to be seen by the target aud ience or competitors cou ld be spend ing more on advert is ing as wel l .

Se l l ing i n a shop is not rea l ly what persona l se l l i n g means, this is just servi ng customers and is not a form of promotion. Persona l se l l ing is where the business promotes the bus i ness by visit ing its customers and d iscuss ing their ind iv idual needs. For exa mple, a representative of a bu i ld ing company visiti ng a customer to discuss what they want. It is usual ly used where an i ndiv idual product or service i s being sold .

e Try th is M usic Mania is a shop which se l ls music CDs. It is located in a la rge shopping centre in the city centre. The CDs it sel ls are by bands and s ingers who appeal

to teenagers. It has been in business for five years and wants to expand.

a) Identify the target aud ience for M usic Man ia . [ 1 mark]

b) The management of M usic Man ia. wa nts to expand. It needs to decide whether to spend more on advertis ing or to sel l a wider ra nge of music CDs which appeal to d ifferent age grou ps. What factors shou ld infl uence the decis ion? [6 marks]

Examiner's tip ./ Consider factors like the cost, trends in spending habits, which option is

most likely to increase profits, and what type of customers use the shopping cen tre.

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UNIT 2 1 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

• 82

· c) M usic Mania has decided to se l l c lassica l music incl ud ing opera m usic. Expla in the factors this busi ness should take into account when decid ing which form of promotion to use. [8 marks]

Examiner's tip . ./ Think about the target a udience - hence where Music Mania should

advertise and cost of advertising, different forms of promotion a vailable, for example, competitions, whether to use PR, etc.

d) M usic Man ia wou ld not use persona l sel l i ng . G ive an example of a bus iness that you th i n k wou ld use personal sel l i ng . Justify your choice of example . [4 ma rks]

N IT 22 Th e m a rket i n g m 1x : p l ace

Key objectives • To understand the different channels of distribution e To understand the role of the wholesaler e To select the most appropriate channel of distribution for a

given product e To select the most appropriate method of transporting goods

for a given product

Key definitions A channel of distribution is the means by which a product is passed from the place where it is produced to the customer or consumer. There are four main channels used by business as follows:

Channel of distribution Explanation/examples

Prod.ucer �

Producer �

Producer � Wholesaler: B uys in large quantities from manufacturer and sel ls in smal l quantities t o smal l reta i lers.

Consumer Di rect sel l ing of products such as com ponents to businesses, new windows for a house, products sold over the internet (known as e-commerce).

Reta i ler Consumer Prod ucts are so ld in bulk to reta i l ers, such as food products to su permarkets, or specia l ist/expensive products, such as jewe l l ery.

Reta i ler Consumer Th is i s where the wholesa ler breaks bu lk, such as for some food prod ucts.

Producer Agent: Wholesaler Reta i l er Consumer When products are exported, the manufacturer sometimes uses an agent in the other country. The agent then sel ls the product(s) on behalf of the man ufacturer.

Independent person or business who deals with the sales and d istribution of a product(s).

Method of transportation is the type of transNrt that the Inanufacturer uses to deliver the products to the n1arket. The most con1n1on n1ethods are road haulage (lorries) , railways , canal or river, sea freight, air freight and pipelines . Genera lly , the slower the forn1 of transport the cheaper it will be.


Sample questions 1) What are the advantages to a producer of using a channel of distribution as shown below? [4 n1arks]

Producer --7 wholesaler --7 retailer --7 consun1er

Marks 1-2 marks for each advantage to the producer.

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• 84

Student's answer The producer can sell in bulk to the wholesaler and therefore does not have to spend n1oney storing the products in the warehouse. The cost of distribution will be lower, as the producer only has to deliver to the wholesaler and not to many different retailers .

Examiner's marks Two good explanations of advantages to the producer -full marks . and cotnments

Marks

Student's answer


2) C & D plc produces computer games designed to be played on PCs. It is a large business based in Brazil, but sells its gan1es in n1any different countries. It has just developed a new con1puter gan1e

. for

teenage children. This new game is to be sold in one of the business's South East Asian markets to see how popular it is before launching it in all the different countries the business sells to .

i) What channel of distribution would you suggest that the company uses for its new game? Justify your choice . [4 marks]

1 mark for an explanation of a suitable channel of distribution; 3 marks for explanation of why this channel would be suitable.

The manufacturer should sell it to a computer gan1e retailer and then on to the customer. This would be a good channel of distribution to use because the customer would need advice about the game and the retailer could be a specialist computer type of shop . If the games were sold to a wholesaler, the correct advice tnight not get to the customer. Also, wholesalers would not buy these gatnes in bulk if most of their retail customers were small shops which sold food and would not be interested in stocking computer gan1es.

A good answer - a suitable channel was suggested (although it was possible to argue that other channels of distribution might be suitable) and then the channel was justified in terms of selling to a retailer and not using a wholesaler. Even though some of the points might not always be true in some countries, the answer was a correct justification for sci/in._� stra(�ht to retailers and not through wholesalers . Full marks .

ii) What factors should C & D plc consider when deciding the marketing mix for its new computer game? [8 marks]

Marks 2 marks for listing up to two or more factors; 4 marks for explaining up to two or more factors; 2 marks for the answer being applied to the computer games market.

Student's answer C & D plc will firstly have to consider who its target tn,arket is for the new game. As it is teenagers, the business will have to design a game that will appeal to this group of consmners . The advertising and promotions will have to be in places that will be seen by teenagers and sold in shops teenagers visit . C & D plc needs to consider how large its advertising budget for protnoting the new gan1e will be. If it is not very large then the business will have to think carefully about where it advertises as it will soon run out of n1oney. TV advertising may not be possible if the budget is small. What cmnpetitors do will also have to be taken into account. If con1petitors sell their computer gan1es in certain shops then C & D plc tnay also have to sell its new game in these san1e shops as this

The marketing mix: pla ce • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

will be where teenagers will go to buy gan1es and will see the new game and buy it. C & D plc will also need to advertise in si1nilar places to its competitors so that teenagers will see the adverts . The pricing strategy may have to be con1petitive pricing if there are already a lot of competitors selling sin1ilar gan1es, or penetration pricing if the business needs to break into this n1arket.



Error

'P lace is where the prod uct is so ld . '

'Reta i lers break bu lk . '

'Sel l i ng through a wholesa ler ma kes products more expensive than if they are sold d i rectly to a reta i ler.'

'Road tra nsport is a lways the best to use.'

Why it is wrong

Place is mak ing the prod uct ava i l able where and when the customer wants to buy and is not just the shop used to sel l the product.

A wholesa ler breaks bu lk by buying from the man ufacturer in la rge quantities and d ivid ing u p the product into sma l ler quantities to se l l to sma l l reta i lers.

A wholesa ler can be chea per to buy from beca use they buy in such large quantities from manufactu rers they get d iscou nts and the ir de l ivery and admin istration costs ca n be m uch lower.

Road transport can be more expensive and slower than other forms of tra nsport - it depends on the product be ing del ivered.

e Try th is a ) Put t h e fo l lowing products in t h e su itab le channels o f d istri bution:

• tins of fru it • shoes (exported) • wedding cakes • new cars .

i) Producer -4 i i) Producer -4

i i i) Producer -4

iv) Producer Agent

-4 Reta i ler

Wholesa ler Reta i ler

Wholesa ler Reta i ler

Consumer

Consumer

Consumer

Consumer

[4 ma rks]

Product

b) D & E is a food process ing business. The d i rectors a re th ink ing a bout ending sa les of their ready made meals to a reta i l cha i n of supermarkets

and se l l i ng them to an a i r l ine for in-fl ight meals . What are the

advantages and disadva ntages of doing this? [ 1 0 marks]

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• 86

Examiner's tip ./ Consider advantages and disadvantages of not selling to a retail chain

of supermarkets and advantages and disadvantages of selling directly to an airline.

c) Monay Ltd was set up ten yea rs ago. It started making wooden ta bles, but s lowly expanded and now makes several d ifferent types of furn itu re. Sa les of its products have kept g rowing and profits have increased rapid ly. The d i rectors of Monay Ltd want to expand into the manufacture of qua l ity d i n ing tables and chairs, which it wants to sel l to h ig h-income consumers.

Suggest a market ing m ix that this business could use if it i ntrod uces qua l ity d in ing tab les and cha i rs . [ 1 2 marks]

Examiner's tip ./ Consider all four P's and link them together to market a high qua lity

product.

d) Why might a d ifferent market ing m ix be used for the same product in d ifferent countries? [8 marks]

Examiner's tip ./ Consider culture, climate, religion, incomes, types of retail outlets used,

use of rv, radio, newspapers, etc.

N IT 23 Fa ctors affect i n g p rod u ct i on

Key objectives • To understand what is meant by value added e To be able to identify what factors may increase productivity e To understand the different methods of production and when

they would be used e To understand the effects of new technology on both the

business and its employees e To identify the different ways of ensuring quality of the

product or service

Key definitions specia l ly made product meets exact requ i rements flex ib le way of working production ca n easi ly

be changed between products

costs are h igher

increased employee motivation

of customer

jobs are more varied

higher ski l led workers needed

costs are low and therefore lower prices

Batch production A certa in quantity of a prod uct is made and then a certa in quantity of another prod uct is made

some variety in jobs can be more expensive

warehouse space needed which is costly

goods prod uced qu ickly Flow production Large quantities of a

capital-i ntensive methods of prod uction ...., __ -t product are produced in a ...... _ ...... jobs are bori ng continuous process (a lso ca l l ed mass production)

lower ski l l ed workers needed, so cheaper capital set up costs are h igh

Term

Value added

Labour productivity

Stock control

Le�n production

if one mach ine breaks down, the whole prod uction l ine stops

Explanation

Difference between the sel l i ng price and the cost of inputs.

Output measu red aga inst the labour input used to produce it.

There should a lways be sufficient stock to meet demand. Th is is checked both in the production and in the shops.

Stock levels

Examples

Prod uct se l l s for $1 0; cost of i nputs $2 per u n it; va lue added = $8

Output (over a given period of ti me)

--Number- oTemi>-,oyees __ _ _ __ __ -

See f igure below.

_ _ _ _ / Maximum stock level

- - . - Reorder level

- - - � M i n imum stock level L---------

Techn iques used by a bus iness to cut down on any waste and therefore increase efficiency.

Ti me

Red uce the t ime taken for a prod uct to be developed; red uce any waste in the prod uction process.

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Term Explanation Examples

Qual ity control I nspectors check the f in ished goods to detect any fau lty ones.

Sample one i n every 1 00 prod ucts produced to make sure none is fau lty.

Qual ity assurance There is inspection both d u ring and after production and tries to stop a ny fau lts from happen ing i n the fi rst p lace. Req u i res team working from the employees.

All the production workers check their pa rt of the process and make sure there are no fau lty components or fau lty f in ished products.

Sa mple questions a n d a nswers

• 88

Sample question Sita Ltd produces clothes for babies. It has been in business for ten years and has seen sales increase rapidly throughout this titne . It employs 50 production workers who use sewing n1achines . The production manager wants to introduce new sewing tnachines that are twice as fast as the old ones. It will allow the business to produce higher quality baby clothes as well as gain from other benefits of new technology. The average selling price of an iten1 of clothing is $ 10 with material costing $ 1 . However, with new machines i t will allow the selling price to increase to $ 15 and material will only cost $2.

a) What will happen to the value added of the average product if new technology is introduced? [3 marks]

Marks 2 marks for value added $ 1 0 - $ 1 = $9 and $ 1 5 - $2 = $ 1 3 . 3 marks in total for a correct answer: new technology $ 13 - $9 = $4.

Student's answer $ 1 0 - $1 = $9 and $ 1 5 - $2 = $ 1 3 . Value added increases by $3 .

Examiner's marks Correct method, incorrect answer. 2 I 3 marks . and comments

b) Why n1ight the production manager want to introduce new technology at Sita Ltd? [8 marks]

Marks Up to 3 marks for lists of why new technology is an advantage; up to 3 marks for explanation of advantages of new technology; 2 marks for applying the answer to this business.

Student's answer New technology will Jllow SitJ Ltd to produce 1nore high quJlity garments . As productivity will increase, it may be able to decrease the number of employees and therefore production wages will be reduced and even though the new technology will cost a lot of money to buy, it may increase profits .


The answer is in the context of Sita Ltd and so 2 application marks were gained; 1 mark for the first advantage and 3 marks for the second advantage as it is explained. Total = 618 marks . Explanation of the first or third point would have gained full marks - a good answer.

c) Sita Ltd uses batch production in the production of baby clothes. i) What is tneant by batch production? [2 n1arks]

Marks 2 marks for a clear deji11ition; 1 mark for a vague answer.

Factors a ffecting production • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Student's answer Batch production is where an an1ount of a particular product is produced and then an amount of another product is produced.

Marks

Student's answer


Try to mark this yourself- the examiner's marks and cormnents are on page 1 08. ,.

ii) Why does Sita Ltd use batch production and not flow production? [6 marks]

2 marks for advantages of batch production or disadvantages of flow production; 2 additional marks for explanation of these advantages/disadvantages; 2 marks if applied to Sita Ltd.

Sita Ltd uses batch production because it does not sell enough baby clothes to produce a large quantity as there is not enough den1and. Also these kinds of products come in many different styles and sizes and not just one basic product so again the business will need to produce so many of one size, so many of another size, etc . Flow production would mean a very large quantity of a single garment would be made and Sita Ltd wouldn't be able to sell thetn all.

A good answer, although there is some repetition at the end. Well applied to the case. Full marks .


Error

'Va l ue added is profit made.' (Also in U n it 1 )

' I ncreased product ivity means that production i ncreases. '

'F low production is where a lot of production of one product is produced and then qu ite a lot of production of another product is made.'

'Qua l ity contro l is making sure a product is of the h ig hest qua l ity. '

'New technology a lways means jobs are lost. '

Why it is wrong

Va l u e added is not j ust profit, it is the sel l i ng price m inus the cost of inputs.

Productivity usu a l ly refers to an increase in output per worker which may mea n an increase in output overa l l or it may not.

F low prod uction is where large quantities a re prod uced in a cont inuous process. A large quantity of a standard ised product is prod uced.

Qua l ity contro l is where products a re checked to make sure there are no fau lts with the products and they meet the standards expected for that prod uct. It does not mean the product is of h igh qua l ity j ust that it does not have any defects.

When new technology is i ntroduced some jobs may be lost as machi nes may now do particu lar jobs. H owever, other jobs may now be created, for examp le, computer programmers, operators of the new eq u i pment, maintenance jobs.

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• 90

e Try this a ) Medic Suppl ies p i c produces equi pment for hospita ls . Some o f the equipment it sel ls is designed to a particu lar hospita l 's specification and is bu i lt to their order, such as machi nes which scan patients' whole bod ies. Other equ i pment is produced conti nuously, such as ba ndages. i) What two methods of production does M edic Suppl ies p ic use?

[2 marks] i i) Why is qua l ity contro l or qua l ity assurance so important to Medic

Suppl ies pic? [4 marks]

Examiner's tip ../ Explain what is meant by quality control or quality assurance - you do

not need to do both. Apply your answer to Medic Supplies pic.

i i i) Expla in how Medic Suppl ies p ic ca n use stock contro l to ma�e sure it never runs out of raw materia ls when producing bandages.

[6 marks]

Examiner's tip ../ Explain the process of stock con trol and how it ensures that raw

ma terials should always be available so production can take place.

iv) The d i rectors at Medic Suppl ies pic have been advised to introduce lean production techniques. Describe what is meant by ' lean production' and how it mig ht be used at Medic Suppl ies pic .

[6 marks]

b) Telesa les Services Ltd was set up four years ago. It processes orders for severa l smal l businesses in a city. It takes orders from customers and then passes these back to the sma l l b us iness so that the item(s) can be del ivered . It introduced on- l ine ordering one year ago and has found that this s ide of the business has g rown very ra pidly. However, the telephone ordering side of the bus iness has fa l len s l ig htly. i) ' It is fou r t imes cheaper to process an order on- l ine than over the

telephone, ' says M igue l, the Managing Di rector. Why do you th ink this is true? Exp la in your answer. [6 marks]

Examiner's tip ../ Explain the cost savings of using computers to take orders instead of

people.

i i ) Expla in why the employees m ight be worried about the trend i n

increased on-l ine ordering and fewer telephone orders a t Te lesa les Services Ltd . [4 marks]

Examiner's tip ../ Explain the possible effects on the number and types of jobs at the

company.

N IT 24 Facto rs affect i n g l ocat i o n

Key objectives • To understand the factors that affect the location of a manufacturing business

e To understand the factors that affect the location of a retailing business

e To understand the factors that affect the relocation of a business e To understand the factors that affect the location of a service

sector business

Key definitions Factors affecting the location of these different businesses :

market raw mater ia ls/components c l i mate shoppers ava i lab i l ity of su itab le

external economies

of sca le

water supply

transport and

power shops nearby

·

empty shop

rent

personal preference of the owners

ava i lab i l ity of labour

government i nfluence access for del ivery customer parking secu rity

government g rants avoid tariff barriers cl i mate rent

new markets overseas

no room to expand at present site

raw mater ia l near to other sou rce runs busi nesses

out

rent/taxes ris ing

d ifficu lties with labour force

avai Ia bi I ity .--'---------,.----�.,.,.---J of labour customers

personal p,referen e of owners


Sample questions 1) Better Burgers is a fast food chain. I t has £1st food outlets in tnany different countries and is considering opening a new outlet in a city centre . Discuss what would be the most important factors when deciding on where to locate this outlet .

[1 0 nurks]

Marks 1-4 marks for listing /explaining factors that would ciffect location decisions; 2 marks for application to fast food outlets; 1-4 rnarks for explaining which would be the most important factors .

9 1 •

UNIT 24 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

• 92

Student's answer Better Burgers needs to find a site that is in the centre of the city.


Marks

Student's answer


It should be where there are lots of shoppers who would be likely to use the fast food outlet. The location should also be near places for customers to park their cars . The rent to be paid on the premises should be considered, as it will be very high in the city centre compared with the edge of the city. Delivery vehicles will need to be able to get to the outlet so that they can deliver food. An empty shop or building will have to be looked for and the security of the area should be taken into account. If there are a lot of robberies in the area , it n1ight not be the best of locations . The kind of shops and restaurants nearby is an in1portant factor to consider, as they will attract shoppers to the area who n1ight then eat at the outlet. The most important factor is the nu1nber of customers there will be in the area. The outlet needs to be in the centre of the city to make sure it attracts a .lot of custo1ners. Then the amount of rent paid will not be very in1portant as the outlet will make a lot of sales to pay the rent easily . Access by delivery vehicles is less important as they will be able to get the food to the outlet easily by trolley. Obviously, an empty shop is needed, but it does not matter if it is not in the right area .

10 marks. The factors were discussed and applied to this scenario. The importance of the factors was also discussed.

2) A car sales outlet wants to open in the city. Why would' its location be different to a jewellery shop? Explain your answer.

[8 marks]

3 marks for explaining the factors that affect the location of a jewellery shop; 3 marks for explaining the factors that affect the location of a car sales outlet; 2 marks for making the differences clear.

A jewellery shop would need to be on a high street or nuin road where a lot of people would pass by and look in the shop window. It needs to be in a secure area, so that it is at less risk of theft . The shop could be located near other jewellery shops to attract people coming to the area to buy jewellery.

The car sales outlet needs a lot of space to park all the cars for sale. The rent should not be too high as the prenuses will take up a large area7 which will make it expensive. Access for customer parking is important because custon1ers are likely to drive up in their cars and need to park so they can look at the cars for sale . As long as cars can get in and out, access for delivery shouldn't be in1portant.

Comparisons are not made, even though factors affecting both types of shop are explained. Therefore 6 I 8 marks were awarded. Clear comparisons are needed for full marks.

3) A company \hat cleans offices needs to decide where to locate

its own office staff Why 1night it not locate its own offices in the city centre? [6 marks]

Marks Up to 3 marks for listitzg disadvantages of locati11g iH the city centre; up to 3 marks for explaining these disadvantages .

Fa ctors a ffecting loca tion • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Student's answer The city centre is expensive in tenns of rent of pretnises. It is an area that a lot of businesses want to locate in and this will drive up the rent to be paid. It is difficult and expensive to park cars in the city centre . It takes a lot of time for employees to get to work in the city centre . The offices do not need to be located where there are a lot of people.

Try to mark this yourself- the examiner's marks and comrnents are on page 1 08.


Error

'Bus inesses need to be near the raw mater ia l source.'

' It is a lways better to locate near to customers. '

Why it is wrong

B us inesses on ly need to be near the ir raw mater ia ls if they a re a manufactur ing busi ness and prod uce a lot of waste. It is not so i mporta nt to be near the raw mater ia l source with today's improved transport l inks.

Many bus inesses locate where their costs wi l l be low. Th is may be in another cou ntry where wages are low. It may not be near to customers.

'The internet has not affected where B us inesses that use the internet to businesses locate. ' se l l their products do not need to be

near to customers any more, as they rece ive their orders over the i nternet and then post the goods to customers. The business can locate anywhere.

e Try this a ) M and T p i c manufactu res choco lates. I t wants t o set up a new factory making chocolates. The business employs a lot of workers and many of them need to be qua l if ied in choco late making . The cocoa used to make the chocolate is i mported.

i) Select three factors that wou l d affect the location of th is busi ness and exp la in why they a re i mportant. [6 marks]

H) This bus iness has started to sel l an increasing quantity of its choco lates in an overseas market. The Managing D i rector is th ink ing of moving the manufacture of the chocolates to this overseas market. D iscuss what factors he should take i nto account when decid ing whether to move the factory abroad. [ 1 0 ma rks]

Examiner's tip � Consider the market, costs of setting up a new factory, costs of running

a factory in this o verseas market.

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• 94

b) Governments do not usu a l ly l eave the location decis ions tota l ly to busi nesses themse lves. Expla in why you th ink this is the case. [6 marks]

Examiner's tip ./ Explain the disadvantages of businesses choosing to locate where they

want to without any consideration of the local population or environment.

c) DD Ltd is a business that stocks and sel l s sports c lothes over the internet. D iscuss whether you th ink the location of the busi ness is important.

[6 marks]

N IT 2 5 B us i n ess i n th e i nte rn at i on a l com m u n i ty

Key objectives • To understand that business success can be influenced by international factors

Key definitions

Term

Imports

Exports

Exchange rate

Currency appreciation

Currency depreciation

Common (single) currency

Tariff

Quota

Global isation

Multinational corporations

Economic union

e To explain how exchange rates can have an impact on businesses that import and export

e To understand what globalisation is and why it is increasing e To explain the effect that multinational businesses can have on

a country

Defin ition

Prod ucts bought by a country from other countries.

Prod ucts sold from a country to other countries.

The price of one currency in terms of another.

When the currency buys more of another currency than before, its va lue r ises.

When the cu rrency buys less of a nother currency than before, its va lue fa l l s .

When a group of cou ntries agree to use the same currency.

A tax on imports to make them Jess competitive with domest ica l ly produced products.

A maximum l imit on the quantity of imported goods a l lowed i nto a cou ntry.

The increase in i nternational trade and competition, as shown by the growth of mu ltinational corporations.

B us inesses that have operations i n more than o n e country.

Ag reements between countries to trade freely with each other and have common economic institutions.

Examples

Spa i n i mports o i l from Saudi Arabia, Saudi Ara bia i mports cars from Germa ny.

G ive two examples of i mporta nt exports from your own cou ntry.

The exchange rate for £ in terms of the euro was £ 1 : 1 .45€ in May 2004. F i nd out the exchange rate for you r cou ntry's cu rrency i n terms o f the US$ .

OLD: £ 1 : $ 1 N EW: £ 1 : $ 1 .50 £ has appreciated

OLD: 1 €: $ 1 N EW: 1 €: $0.80 € has depreciated

The euro is used by many members of the European U n ion.

Try to f ind out about a tariff put on an import i nto your cou ntry and make a note.

Does your country have any import quotas? Try to fi nd out one such quota and make a note.

World trade is growi ng at over 1 0 % each year. Tarrifs and quotas are being red uced.

Coca-Co la, McDonalds, l kea (furn iture), Canon (copiers and ca meras) .

The European Un ion (EU) .

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UNIT 25 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •


• 96

Satnpl� question Three countries , X, Y and Z, trade with each other. The governtnent of Country X is worried about the high level of imports from the other two countries . The governn1ent of Country Y wants to encourage the other countries to join a co1nmon currency. The currency of Country Z has recently appreciated against the currencies of the other two countries .

a) State one way in which Country X could reduce in1ports fro1n the other two countries . [ 1 n1ark]

Marks 1 mark for either import tariff or import quota .

Student's answ�r Tariffs on itnports is one way.

Examiner's marks 1 mark . and comments

Marks

Student's answer


Marks

Student's answer


b) Explain two ways in which businesses in Country X n1ight be affected by the government reducing imports . [4 marks]

1 mark for identifying each factor plus 1 further mark for some development of each factor.

If imports were reduced then consun1ers might start buying n1ore products from businesses in Country X. This would increase sales . Also, a reduced supply of imports could increase prices .

This answer is worth 3 marks . The first point is a good one and the effect on businesses is briefly explained. The second point is only identified and gains 1 mark . The student should have explained the possible �[feet 011 business of higher import prices} for example} if a business i11 Cout'ztry X imports important materials then a price increase would raise its costs. This could lead to lower profits .

c) Do you think that businesses in these three countries would benefit from a common (single) currency? Explain your answer.

[6 n1arks]

1 mark for difrnition} up to 5 marks for giving a balanced discussion; maximum of 4 if only one side of argumerzt is given .

A single currency is when several countries agree to use the san1e money so that when they trade the satne n1oney can be used. This would benefit businesses . It would tnean that cornpanies would not have to convert tnoney into foreign currency if they were buying imports . This would save on currency exchange costs . A con1n1on currency also means that they could just print one price list for all three countries which would save on costs .

There are pqssible drawbacks too though.

4 marks . This is a good} thou(_�h one-sided} answer. 1 1zcre is no evaluatio11 of the benifrts} so it cannot earn more than 4 marks. The studc11t should have explained briefly two poi11ts agai11st a common currency. For exmnple} it will be easier for consumers to compare prices and competition may itzcrcase due to the ease of selling to other countries .

Business in the interna tional community • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

Marks

Student's answer


d) i) Complete this table with an exchange rate for Count1y Z's currency (Yen) in 2005 showing an appreciation con1pared to the $ . 1 1 n1ark]

2004 1 Yen : $2

2005 1 Yen : . . . . . . .

1 mark for correct answer (any rate over $2) .

$2 .50

Yes, the student understands that an appreciation means that a currency uni1t buys more of another currency than before. 1 mark .

i i ) Explain one effect of this appreciation on exporters in Country Z. [4 1narks]

Marks 2 marks for explaining that export prices could rise; 2 marks for development - it could lead to lower demand for exports a11d lor ucr profits

from exporting.

Student's answer When a currency appreciates it makes in1ports cheaper and exports more expensive . This means that exporters in Country Z will find it more difficult to sell goods to other countries. Exporting will become more difficult and less profitable .



Error

' I nternat ional trade is bad for business as it l eads to more competition . '

'A business can easi ly sel l i ts products to other countries. '

' M u lt inationals sel l products in more than one country. '

Why it is wrong

Although trading with other cou ntries can increase competition, busi nesses a l so have much larger markets and can often purchase suppl ies cheaply from other countries.

Se l l ing to other cou ntries i s not a lways easy. Prod ucts and marketing may need to be changed to meet loca l market conditions, for example .

To be termed a mu lti national , a bus iness should have production operations in more than one cou ntry.

e Try th is Zircon p ic man ufactu res chem ica ls for industry. Cu rrently i t on ly operates in one cou ntry. Zi rcon is p lanning to set up another chemica l factory in Country X, which has a rap id ly expand ing economy. Country X has h igh tariffs on a l l imports. The Manag ing Di rector of Zi rcon has asked the govern ment of Cou ntry X for permission to bu i ld the factory. The govern ment and trade u n ions are very interested in the p lan. Greenworld, a loca l environmental group, is aga inst the p lan .

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UNIT 25 • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

• 98

a) Exp la in two reasons why Z ircon is p lann ing to become a m u ltinationa l . [ 4 marks]

b) List two problems Zi rcon might face when operat ing in another country. [2 marks]

c) Eva luate whether the government of Country X should a l low Zi rcon to bu i ld the new chemica l factory. [8 ma rks]

Examiner's tip ./ Consider the a dvantages and disadvantages to the coun try of Zircon 's

new factory, then come to an o verall conclusion.

An swe rs

U N IT 1 The pu rpose of business activity Sample questions and answers b) Examiner's marks and comments : This answer

shows a good understanding of division of labour (1 n1ark) and the possible benefits to ARC (3 marks) . The disadvantages are less detailed (1 rnark) and not applied to this business. The student could have explained the motivation problen1 leading to workers leaving and the i1npact this might have on output and sales for ARC. Total = 5/7 marks.

d) Examiner's n1arks and comments : Full marks - the answer analyses ;nd evaluates clearly.

• Try this

a) 1 n1ark each for any of these : unemployed workers (chance of a job) , shareholders, con1petitors, residents , government.

b) The answer will depend on which groups are chosen. For example, unemployed workers would now have a chance of getting a job in the new £1ctory, but workers in existing plastics factories n1ight be worried about the new co1npetitor destroying their jobs; the government would welcome the new jobs and increased output (some might be sold abroad as exports) ; the new factory will pay taxes to the governn1ent, but the government might be worried about the negative in1pact on the envi�onment and the risks of pollution. (Only need to look at one advantage and one disadvantage per stakeholder.) 4 n1arks for identifying advantages/ disadvantages; 4 marks for discussion.

c) Define division of labour ( 1 mark) . Benefits to workers n1ight be: able to specialise and be trained in one task, if output increases this could increase wages. But: work may becon1e repetitive �nd if plastics factories close (decline of the industry?) then the skills that workers have may no longer be needed. Up to 4 marks for identification of advantages/ disadvantages; up to 3 marks for discussion.

U N IT 2 Types of business activity Sample questions and answers d) ii) Exan1iner's n1arks and con1 1nents : The two

advantages were both briefly explained. However, there was no atten1pt to show judgement or evaluation . For exan1ple, the student could have referred to the price that Airco nught be sold for. Airgroup might pay too n1uch and end up making a loss . Also, Airco workers might go on strike as they do not want to leave the public sector - perhaps because they believe that their jobs are safer under government control . Total = 6/8 marks .

e Try th is

a) i) Con1pany X ii) Con1pany X b) Less efficient/productive workers; over-staffing;

labour-intensive production methods - could be a business that produces hand-1nade shoes. Any one point explained = up to 4 nurks .

c) Managers/ owners nuy wish to remain sn1all to avoid extra work or stress ; lack of finance for expansion; the business 1night sell in quite a small sector of the market with low sales -does not want to expand into other tnarkets it does not know so well. 1 mark for each factor identified (n1axi1num of 2 nurks) ; 1 n1ark for developing each point.

d) i) Backwards vertical integration ( 1 rnark) because the leather supplier is in the san1e industry, but supplies raw materials (i . e . at a different stage of production) . (2 nurks) . ii) More regular and certain supplies of raw material; can control quality of raw material; can obtain cheaper supplies; can prevent supplies being sold t

.o competitors . 1 nurk for

identification (of each benefit) ; 1 nurk each for some development.

e) i) Secondary (1 n1ark) - it turns ravv nuterials into finished goods. 1 nurk for the explanation . ii) Tertiary ( 1 n1ark) - they provide a service to consun1ers/nunufacturers . 1 mark for the explanation. iii) This is vertical integration forwards (1 n1ark) . It gives the nunufacturer a guaranteed outlet for goods ; the n1anufacturer can control price and marketing of goods etc . 2 nurks for identifying points ; 2 rnarks for smne de.velop1nent.

f) The public sector is usually n1ade up of i tnportant industries such as electricity and public transport . The shoe retailing industry is

99 •

ANSWERS • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

not as itnportant as this , so it should be in the private sector and private owners will run the shops for profit . 1 mark for definition ; up to 4 tnarks for developing argun1ents .

U N IT 3 Forms of busi ness organ isation Sample questions and answers d) Exatniner's tnarks and con11nents : Although

this is quite a short answer, it contains in1portant points and son1e discussion. There are both advantages and disadvantages and these are briefly looked at fron1 Rashid's point of view. There is a clear recommendation and this is backed up by knowledge of a Deed of Partnership. Total = 8/8 marks .

e Try this

( 1 111ark deducted if no recotn111endation given) . For: can raise tnore capital through sale of shares (they plan to expand) ; higher public profile and better i111age; could use share capital to reduce loans . Against: sotne loss of control ; danger of future takeovers ; have to release inforn1ation to public (0 and 0 wanted to control their own business) . Give a final recon1mendation and justifY it.

U N IT 4 Govern ment a n d economic i nfl uences on bus iness Sample questions and answers d) Examiner's marks and comn1ents: This is an

excellent answer. Notice how the student starts off by defining these two tern1s . The effects of higher interest rates are well applied to Fogla's shop . Finally, there is a very good attempt to evaluate these effects - Fogla 's might not be that n1uch affected by higher rates and the student explains why. Total = 8/8 marks .

a) 1 mark for identifying each reason and 1 mark each for son1e developtnent. She n1ay have shared smne of the work - the business was expanding rapidly. She may have added capital to the business to allow it to buy more equipn1ent which was needed for the expansion. • Try this

b) 2 n1arks for accurate definition - franchising is a) 2 marks for accurate definition . when a business has pem1ission to use the b) 2 n1arks for two exan1ples of governn1ent name, logo and trading methods of an action to protect consun1ers ; up to 2 marks in existing business . addition for explaining each point.

c) Up to 3 marks for identifYing Governments often protect consun1ers fron1 advantages/ disadvantages ; 3 marks for dangerous products . If a soft drinks firm did discussion of these for 0 and 0 Cleaning not use very clean methods of production with a formal judgement. Advantages: rapid then this could harn1 consumers . The way to expand, franchisees use own capital to government would use laws on hygiene expand. Disadvantages : less control over the standards in this case . Also acceptable : business ; franchisee keeps some of the profits protection against monopoly power, of their business . Useful for 0 and 0, as they misleading advertisements, underweight or wanted to expand quickly. They would not faulty goods . have to provide all the finance (it is not a pic) , c) 1 mark for identifYing a reason, up to 3 n1arks but son1e control is lost and ' they were keen

for development/ explanation. To protect local to control their own business ' .

environn1ent, to avoid building o n fannland, d) 1 n1ark each for identifYing up to three benefits; to protect residents fron1 pollution, etc . 1 n1ark each for developing them. Benefits : Without these planning restrictions fin11s less risk; proven successful product; some

management tasks done by the franchiser; would be able to build in the cheapest

market research and marketing decisions taken location without considering any other factors .

by franchiser. , d) To create more jobs and to increase den'land

e) 1 nurk for each difference; 1 n1ark for for the products of local suppliers. 1 mark each.

developing each one. e) Up to 4 marks for identifying advantages and

f) 2 n1arks for advantages ; 2 tnarks for disadvantages; up to 4 n1arks for a balanced

disadvantages and up to 4 tnarks for argun1ent fron1 Mitn Chul's point of view. explaining and discussing these for 0 and 0 Advantages: improved working conditions,

• 1 00

Answers • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • •

more motivated staff, fewer costly accidents , better public image. Disadvantages: could increase costs, might make Mim Chul's firm uncompetitive compared to rival firms that might have poor health and safety, and lower costs as a result; money could not be used for other things, for exan1ple, improved machinery.

UNIT 5 Other external i nf luences on busi ness • Try this

a) 2 marks for accurate definition. b) Central Government = Increased exports

Local workers = More choice of jobs Local authority = Increased local tax payn1ents Residents = Noise fron1 aircraft Local unen1ployed workers = More chance of finding a job Businesses = Easier to i1nport and export goods Airlines = Increased flights mean expansion Train con1panies = Increased competition from airlines Environmentalists = Destruction of nature sites 1 mark for each.

c) Up to 2 n1arks for appropriate letter format. Either (argu1nents against) : Noise, pollution, increased traffic and car parking, spoiling the countryside . Conclusion could be: build it elsewhere or stop the growth in air transport (for exan1ple, increase taxes on flying) . Or (arguments in favour) : Jobs, increased sales for lo-cal businesses, more tourists fron1 other countries, easier to import and export products . Conclusion could be: build it as soon as possible , as it will lead to much greater business sales and output. Up to 4 n1arks for points tnade; up to 4 n1arks for analysis and final conclusion.

U N IT 6 Bus iness costs and reven ue e Try this

a) 1 mark each for: Direct: flour; wages of bakery workers Indirect: salary, rent

b) 2 n1arks for defining budgets ; 2 n1arks for brief outline of up to two benefits; 2 111arks for applying to Cairo Tyre Con1pany . Budgets are financial plans (for the future) .

These plans give departn1ents a target to \Vork towards. This can be tnotivating for workers. They help to prevent overspending. The 1narketing departrnent spent too 111uch at the Cairo Tyre Co1npany and this 1night have been because the departrnent did not know what the budget was.

c) 1 mark for defining disecono1ny; 1 mark for any one diseconomy of scale . The example applied to Cairo Tyre Company for 1 further mark.

d) Up to 3 marks for developing benefits; 3 further marks for disadvantages; 2 further marks for balanced discussion. Advantages : useful for analysing how n1uch n1ust be sold to cover all costs (break even) and the safety margin; can be used to compare different options, for example, the break even of different shop locations; able to analyse what might happen to break even if prices are lowered/raised. Disadvantages: assun1es all goods are sold; assumes straight lines are realistic ; fixed costs are not always constant; can becon1e out of date quickly. On balance : useful if the drawbacks are considered when analysing break-even results .

U N IT 7 Busi ness acco u nti ng Sample questions and answers c) Examiner's marks and con1n1ents: This is very

good. The two forn1ulae have been given and the calculations are correct. What is n 1ore, the student understands what the results show and tries to suggest one reason for the poor figures . judgen1ent is shown at the end - it is important to compare ratio results either with other years or with other, sin1ilar, businesses . Total = 1 0/ 1 0 n1arks.

e Try this

a) 1 mark each for: profit and loss account; balance sheet. (Accept also cash flow statement. )

b) Up to 3 nurks for either. The balance sheet contains details of the finn's assets and liabilities. It also shows the shareholders' funds; or: profit and loss account contains the revenue, gross and net profit of the business. The balance sheet also shows the retained profit.

c) Shareholders: i)

1 0 1 •

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Trade union: iii) Govermnent: iv) Creditors: ii) 1 tnark each .

d) Up to 4 111arks for correct ratio results (up to 2 marks if correct formulae but incorrect resul ts) ; 6 n1arks for analysing and briefly discussing results . (Accept any four results .)

(Not essential to show form u l a u n l ess 2004 2005 calculation is wrong)

G ross profit marg i n % = G P

x 1 00 2 0 % 1 7 . 1 % Sa les revenue

Net profit marg i n % = N P x 1 00

Sa les revenue 10% 7 . 1 %

Return on capital employed % = N: x 1 00 1 5 % 1 0.4%

Cap 1ta l employed

These results show that the profitability of Titan Tankers has declined since 2004 . The cmnpany has n1ade less gross and net profit even though sales have increased. Costs seem to have increased too quickly. Also, net profit has fallen despite the fact that more capital has been invested in the business . The new capital does not seem to be very profitable or is not being used very efficiently. But it is important to con1pare with other companies in the same industry.

U N IT 8 Cash flow p l a n n i n g e Try this

a) (2 ,000) This is obtained by subtracting total cash outflow from cash inflow or 1 ,500 - 3 ,500 = (2 ,000)

b) Up to 2 marks for definition. This is the cash balance at the end of the month - it could be negative if there is a bank overdraft .

c) Up to 4 nnrks for using the cash flow forecast to explain answer. There is a bank overdraft at the end of July (a negative closing balance) because cash outflows in the first two months were greater than cash inflows . Although this was not true in July (cash inflow 3 ,000 and cash outflow 1 ,500) ,'

the negative cash balances in the other n1onths were bigger than the positive net cash flow in July . The n1ain reason seen1s to be the purchase of equipment.

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d) 2 marks for identifying reasons; up to 4 n1arks for explanation including use of cash flow forecast figures . They can be shown to lenders and investors to encourage then1 to lend/invest. They can be used to plan future finance needs . In this case Rishav and Abdullah would need to plan an overdraft, at least for the first three months . If they did not plan this, the bank could refuse it just when they needed it . In this case it shows that the net cash flow is positive in July and this n1ight encourage lenders and investors to believe

·

that the radio station will be successful .

U N IT 9 Fi nancing bus iness activity Sample questions and answers 3) ii) Examiner's marks and cotnments: 2 marks

for knowledge and application; 1 nnrk for some attempt to analyse why it would be useful. The student could have explained that forecast profit and cash flow would be very important to the loan decision. Also, there is no evaluation. The business plan might not be detailed enough or the bank n1anager tnight think that it was too opdn1istic, so the loan might not be given after all. Total = 3/6 nnrks .

e Try this

a) 1 n1ark for each advantage and disadvantage . Shares: Can raise substantial sun1s of capital for lin1ited con1panies but nny affect the ownership and control of the business . Overdraft : Flexible form of finance that can be varied to meet the needs of the business but often high interest rate and can be called back by the bank at short notice . Long-term loan: Suitable for long-term projects or expansion and does not affect ownership or control but interest n1ust be paid and the loan will have to be repaid.

b) 1 mark for each correct answer: Debenture : external Shares: external Profit: internal Sale of buildings : internal

c) Up to 2 tnarks tor stating suitable sources, up to 4 n1arks for explaining any two of these for this business ; 2 rnarks for reasoning and recon1mendation .

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Long-term loans (short-term or medium-tern1 may be unsuitable) , sale of shares, retained profits . An overdraft is not suitable for longterm expansion. Explain one benefit and one drawback to at least two of these . Recommendation. Might depend on current interest rate - if high, then shares or profits might be better. If profits are low then they might be inadequate for the expansion. If directors do not want to risk losing control, then sale of shares could be risky. Advice : retained profits if sufficient, if not, then loan if the interest rate not too high.

U N IT 1 0 Organ isational structu re Sample questions and answers d) Examiner's marks and comments : Two factors

are identified, explained and given some link to Yuan's flower business . Finally, the student tries to explain that the final structure is not certain - it depends on how Yuan expands the business . All four skills are shown by the student. Total = 8/8 marks.

• Try this

a) 4 marks for correct and labelled chart; 2-3 marks for missing some information or one level; 1 n1ark for some attempt.

l Line managers

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Factory manager

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Supervisors

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b) i) 1 mark for identifying problen1; 1 1nark for application to Abadullah's business; 2 marks for explanation/ analysis. Poor communication with lower levels -managers of factories will not be able to comn1unicate easily with Head Office; decisions not taken locally or taken by more junior 1nanagers . The styles of clothes chosen by Abadullah might not be right for all regions; possible poor motivation for factory managers as all nujor decisions are taken at Head Office.

ii) 1 n1ark for definition; 1 nurk for application to this business ; 2 marks for explanation/ analysis . Yes, it does appear to be centralised as all major decisions are taken at Head Office which is a sign of a centralised business . Factory managers cannot decide which styles to make or how to pay their production workers.

iii) 1 mark for definition; up to 3 n1arks for identifying advantages/ drawbacks of decentralisation; 2 nurks for explaining/ analysing at least two of these and 2 marks for discussion/judge1nent. Decentralisation is when decision-n1aking power is given to factories , branches or divisions, and not Head Office. Possible benefits : Quicker decision-n1aking locally , decisions taken locally will take local £Lctors such as fashion or labour shortages into account. Drawbacks: nunagers will need training to take good decisions; different branches and areas n1ay take different decisions and these could clash . Decentralising could benefit Abadullah's business if managers are trained well and if local differences are so great that Head Office decisions do not suit all areas.

U N IT 1 1 M a nag i n g a bus iness

e Try this

a) 1 mark for reason; up to 3 nurks for explaining it. Any one of: motivating staff; giving the business a sense of purpose and direction; making sure all departn1ents are working towards the san1e ai1ns ; giving n1anagers a means of comparing actual perforn1ance against the original target. Any one of these should be briefly explained, analysing why this advantage results fro1n ain1s and targets .

b) 1 mark each (see Key definitions) . c) Up to 3 111arks for identifying i1nportant

factors; up to 3 n1arks for applying then1 to this business; up to 4 1narks for analysing then1 with a final, supported recornmendation. Person A is very �unbi tious and if Un1eel wants the restaurant to expand, this might be the person to e1nploy. 'A' seen1s to be a good communicator - very in1portant

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in a busy restaurant. 'A' is well educated and possibly trained in managetnent and n1otivation techniques - the 25 restaurant staff will need to be well tnanaged. '13' has n1ore relevant experience and being a former chef n1eans 'B' might concentrate on quality n1eals and motivate the staff to achieve this target. Quality is 'B"s objective and this n1ight mean that Un1eel could increase prices in the restaurant. If Umeel wants the business to expand over the next few years, I would choose 'A' as long as there are already good chefs who can take control of the cooking side of the business.

U N IT 1 2 Com m u n i cation i n bus i ness • Try this

a) 1 mark for correct answer plus 1 mark for brief explanation. External - the manager is sending a message to people who do not work in the business.

b) Up to 4 marks for up to two advantages and two disadvantages of any two methods; up to 4 marks for discussion in context and final re cot11 1 1 1 e t 1 da tio 1 1 . An e-n1ail would be quick, but it may not be opened inm1ediately. An attachn1ent could be included, in colour, of the product details. A telephone call would be more personal and the benefits of the new sweet could be explained to evety shop owner; however, it would take a long time to telephone all shop owners. The best n1ethod could be a video sent to all shops plus posters for displaying in the shop . It could be expensive and take a long time to produce the video though, and the n1anufacturer could never be sure that every shop owner watched it.

c) 1 tnark each for identifying possible barriers to con1n1unication; up to 2 n1arks for each barrier for explaining them and applying then1 to either exatnple.

· Notice board: cannot be

certain that it will be read by everyone that is meant to receive the n1essage as there is usually no chance for feedback. It is a written format which not everyone will be attracted by, and son1e n1ay not understand the language used. Both of these problen1s could result in poor conlmtmication. The same barriers can apply to newsletters .

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U N IT 1 3 Motivation at work Sample questions and answers 3) i) Exatniner's n1arks and con11nents : 1 tnark

for identifying $200 paid, then 1 tnark for stating piece rate . The third n1ark would be for explaining why it was clear it was piece rate . Total = 2/3 n1arks. ii) 2 marks for correct answer.

e Try this

a) 6 n1arks for explaining the advantages and disadvantages of different financial and nonfinancial n1ethods of n1otivation; 4 tnarks for selecting one method and explaining why you think it the best one to use; 2 n1arks if the answer is in the context of Patel Fashions. Financial nlethods nught include conlnussion, profit-sharing bonus or perforn1ance-related pay. Non-financial n1ethods nught include discounts on the clothes, paying for healthcare, pension, clothes.

b) 4 marks for explaining how to use job rotation/job enlargen1ent/job enrichn1ent to increase n1otivation (1-2 tnarks each) ; 2 tnarks for saying whether you consider job rotation to be the best n1ethod to use and why; 2 tnarks for answering in the context of Patel Fashions . Job rotation involves workers swapping round and doing each task for only a linuted titne and then changing round again. Job enlargen1ent is where extra tasks of a sinular level of skill are added to a worker's job description. Job rotation is quite lin1ited in the shop as there are not very many jobs to do . Job enlargement n1ight be better as workers will then get more enjoytnent fron1 doing a variety of jobs such as working on the tills, arranging the clothes and helping custon1ers, which will increase their job satisfaction .

c) i) 1 mark for autocratic . 2 tnarks for ·

j ustifying the choice of n1anagen1ent style . Workers need to be constantly supervised so they will work. ii) 1 mark for detnocratic or laissez-faire . 2 1narks for justifying the choice of

tnanagement style . Workers are tnotivated by being able to take an interest in the ir work.

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ��:� U N IT 1 4 Recru itment, tra i n i ng and human resou rces

Sample questions and answers 2) ii) Exan1iner's marks and comn1ents : The

student's answer gives two suggestions which are explained. Total = 4/6 marks.

• Try this

a) 1 mark for each reason given, for example, redundancy, sacked, en1ployee left because they found another job/moved away from the area/ emigrated.

b) 1 tnark for stating a problen1 (maximum 2 marks) and up to 2 additional marks if the reason is explained as to why it is a problem. Possible problen1s might include: the reasons why the employees are leaving, for example, bad managetnent; costs of replacing the employees; increased training costs; reduced morale.

c) 2 marks for describing what induction training includes : for example, show the en1ployee where everything is; health and safety training; n1eet other employees; go over rules and regulations of the business. 2 marks for explaining the usefulness to the business of induction training.

d) i) 6. marks for discussing the advantages and/ or disadvantages of internal and external recruitment, for example, cost, skills of app1icants , n1otivation, availability of suitable employees; 2 marks if applied to chefs; 4 marks for justifying which would be the better tnethod to use and why. The conclusion would probably be external recruitn1ent so the che(� would already be trained and able to bring their experience to the restaurants . The chefs would be productive straight away and would not need to be trained by The Royal Garden, which would be expensive. ii) 2 marks

. for explaining either on-the-job or

off-the-job training; 3 marks for justifying which would be the n1ore suitable method to use and why. The answer would probably be on-the-job training, but if suitable justification is given then full marks could be awarded for offthe-job training. Advantages of on-the-job training: because it would be easy and cheap to let other workers show the new en1ployees what to do; these en1ployees do not need n1uch training as the jobs are low-skilled.

U n it 1 5 E m ployee and e m ployer associations Sample questions and answers 2) ii) Exatniner's n1arks and conunents : A good

answer in context of the business and the candidate explains how it will help to avoid conflict. Total = 5/5 marks.

e Try this

a) craft union - (iv) ; industrial union - (ii) ; general union - (iii) ; white collar union - (i) 1 mark for each correct answer.

b) 1 n1ark for each of three benefits (for exatnple, represent employees in negotiations with trade unions; giv� advice to n1embers; act as pressure group for members; share ideas) and 3 additional nurks for explanations.

c) i) 2 marks for explaining the advantages and disadvantages of strike action (for exan1ple , very disruptive to business ; loss of pay for workers) ; 2 marks for explaining the advantages and disadvantages of an overtin1e ban (for example , workers don't lose norn1al pay; pressure on business as orders nuy be delivered late) ; 2 n1arks for deciding which would be more effective for the workers at P and D Ltd and why. An overtin1e ban would probably be more effective because P and D Ltd have got increasing sales and they need to increase output to n1eet these orders . The workers will not lose any wages , but there will be pressure on the con1pany to give in to the employees' wishes otherwise they will lose business . Strike action could also be effective as output would be lost, but the workers would not get paid when on strike so an overtime ban would be the best fonn of industrial action for the workers to take . ii) 1 n1ark for each of three exatnples of worker participation (for exatnple, worker directors, works councils, quality circles, n1ore den1ocratic styles of leadership) ; 3 additional marks for explaining the three ways of having worker participation .

U N IT 1 6 The ma rket a n d ma rketi ng e Try this

a) 1 tnark for stating each objective of tnarketing (for exan1ple, to increase sales revenue and profitability ; to increase 1narket share; to improve the image of products; to target a

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new rnarket or n1arket segn1ent; to develop new products or in1prove existing products) ; 3 additional rnarks for explaining the three objectives .

b) 1 n1ark for each elernent - Product, Price, Pron1otion, Place.

c) 4 rnarks for explaining the benefits of linking the eletnents of the 1narketing mix together (for exan1ple , so that the different elements reinforce each other; the advertising budget will be rnore effectively used; sales will be higher) ; 4 n1arks for explaining what might happen if the business does not link the elen1ents-Jogether (for exan1ple, the sales n1ay not be as high as they could be; potential custon1ers rnay buy the competitors' products ; the product rnight £1il altogether) .

U N IT 1 7 Ma rket research Sample questions and answers b) Exa1niner's nurks and comments: The candidate

only states what is meant by primary and secondary research and does not explain the difference between theri1. Total = 2/4 n1arks.

• Try this

a) 2 n1arks for each advantage stated (for example, first-hand infom1ation straight from actual or potential consutners; can be qualitative rather than quantitative; inforn1ation about the product itself is obtained) ; 2 marks for explaining each advantage.

b) 1 mark for each example (government statistics on population and income; newspapers of the country; trade magazines in the other country; the report and accounts of the competitors in the other country; infonnation provided by an inteniatloiial

organisation, such as the UN, on its website) . c) 2 rnarks for each way the business can try to

ensure the inforn1ation is accurate . Up to 2 marks for explaining each of these ways (for example, make sure the information is up to date, take a large sample, ensure the sample is representative of the target market) .

U N IT 1 8 Presentation of i nformation • Try this

a) 1 mark for a title ; 2 nurks for correctly labelled axes and scale; 2 tnarks for correctly plotted graph.

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b) i) 2 n1arks for describing the trend in each graph. Product A has seen sales increase slowly at first and then rise rapidly. After reaching a peak, sales then fall . Product B sees sales increase steadily, reach a peak and then fall . But sales then start to rise again and continue to rise above the previous peak. ii) 1 mark for stating a reason for the differences; 2 marks for explaining the reason (for exan1ple , Product A has a typical product life cycle ; Product B had successful extension strategies used, so that sales have increased

again after the decline stage) .

U N IT 1 9 The ma rket ing m ix: prod uct and packa g i n g Sample questions and answers d) Examiner's n1arks and con11nents: The candidate

suggests several ways of increasing sales and explains how they should be effective, and there is also a consideration of drawbacks. The answer is applied to this business but no decision is n1ade as to what is the best way of increasing sales. Total = 6/8 n1arks.

e Try this

a) 3 marks for explaining the functions of packaging; 2 marks for applying the answer to sports drinks (for example, to give information about what the drink contains; to make the drink look attractive; to give the drink a sporty image; to preserve the drink) .

b) 3 marks for stating the factors Sheena n1ight take into account . 3 n1arks for explaining why these factors n1ight be in1portant (for exarnple, cost of packaging, competitors' packaging, the target market for the drink, design allowing

con�um�g to drink out of the contJiner) . c) 1 n1ark for labelling the axes, 3 n1arks for

labelling the five stages, deduct 1 mark for each missing label. Stages to label - introduction, growth, maturity, saturation, decline.

d) 3 marks for describing the changes ; 3 1narks for saying what should happen as a result of the changes (for exatnple, the price may be high when the product is first introduced to the n1arket if there are few or no con1petitors . Then competitive pricing as competition increases in the growth phase . When sales start to fall, the price n1ay be reduced to try to encourage sales to increase again or at least slow the decline in sales) .

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e) 3 nurks for explaining why son1e products have longer life cycles (for example, they are not fashion goods and therefore stay popular for longer; they appeal to a large market and have few con1petitors - custon1ers will keep buying the products as there will be no close substitutes) . 1 1nark for a suitable example (for exan1ple, chocolate bars, washing powder) .

UNIT 20 The marketing m ix: price Sample questions and answers c) Examiner's marks and comments: 2 marks for

correctly identifying that demand is inelastic ; 2 marks for making a j udgement as to what the business should have done and why. The student does not explain the effects of the change on the business. The student could have explained that Luxury Leisure plc lost n1en1bers due to the price increase. However, the reduction in n1embers was a lower percentage than the percentage increase in price. Total = 4/6 marks .

• Try this

a) 2 marks for stating whether demand is inelastic (then a percentage increase in price would lead to a smaller percentage fall in sales and an increase in sales revenue) or elastic (then a larger percentage fall in sales and a fall in sales revenue) . 2 marks for explaining why petrol would be likely to have an inelastic demand, which 1neans that customers are not price sensitive and n1ost of then1 will keep buying the product (if prices rise, sales revenue will increase) . Elastic den1and n1eans that custon1ers are price sensitive and they will buy substitute products .

b) 2 n1arks for stating that they want to increase sales of the products; 2 tnarks for explaining that this will be at tin1es of the year when sales will not be good, for exan1ple, at the end of a season for gift items associated with particular festivals.

c) 4 marks for stating factors that affect pricing strategies . 4 nurks for explaining these factors and why they are important to the business (for example, con1petitors ' prices; stage of the product life cycle of the product; costs of production ; type of product; qu::dity of product; whether there are con1peting products) .

U N IT 2 1 The ma rketi ng m ix: promotion Sample questions and answers b) Exatniner's nurks and cmnments: Three

suitable ways suggested and two were justified briefly. Total = 5/9 marks .

e Try this

a) 1 mark for teenagers . b) Up to 3 marks for stating factors like the cost;

trends in spending habits ; which is most likely to increase profits; what type of custmners use the shopping centre . Up to 4 nutks for explaining how these factors influence the decision. If many different age groups of customers use the shopping centre then sales may be increased by attracting a wider range of customers . If Music Mania spends 1nore on advertising then it will only attract the san1e age group of custo1ners and this nny not increase sales as n1uch.

c) 3 marks for stating the factors to consider. 3 marks for explaining these factors . 2 nurks for applying them to selling classical music . The promotion has to be suitable for music. If the profit per CD was not high then 'buy one, get one free' would not be suitable as the business would lose 1noney. COs are not bought that often, so it 1night be better to offer a second CD at a reduced price once one has been purchased.

d) 1 mark for a suitable exan1ple (for exatnple, fitted kitchen, building work) ; 3 marks for explaining why the exan1ple would be sold using personal selling - advice would need to be given and the product or service 1nay be specific to the custon1ers' requiretuents .

U N IT 22 The ma rketi ng m ix: p lace Sample questions and answers 2) ii) Exanliner's n1arks and con1n1ents: A good

answer, but n1ore than two factors were considered and the answer had n1ore points explained than were needed to achieve full marks. Total 8/8 1narks.

e Try this

a) i) wedding cakes; ii) new cars ; iii) tins of fruit; iv) shoes (exported)

b) 5 nnrks for explaining the advantages and disadvantages of not selling to a retail chain of

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supennarkets (for exan1ple, sales are not as high , does not reach a wide target n1arket, n1ore control over the way the product is sold to the custotner) . 5 tnarks for explaining the advantages and disadvantages of selling directly to an airline (sold directly to customer so higher profits , products are produced to the custotner's specification) .

c) Product - should be high quality furniture; Price - should be high ·to reflect a high quality product; Promotion - should be in places where high-income groups would be likely to see the advertisements; Place -should be in shops which sell mainly expensive products . 4 n1arks for stating the different elen1ents of the marketing mix. 4 n1arks for explaining how these four elements would be used in each case . 4 marks for the answer to be in the context of furniture for each eletnent of the n1arketing n1ix.

d) 4 nurks for stating different factors to consider. 4 tnarks for explaining why these £1ctors would be in1portant when deciding on the n1arketing n1ix in a different country. The types of retail outlets used, for exan1ple, may be different. In one country large supern1arkets may be used by tnost of the custotners whereas in another country, small shops tnay be more comn1on, so wholesalers ·will be part of the 'place' in the n1arketing tnix in one country, but not in the other.

U N IT 23 Factors affecting production Sample questions and answers c) i) Exan1iner's n1arks and comn1ents: Clear

definition. Total = 2/2 marks .

• Try th is a) i) 1 1nark for each n1ethod - job production

and flow production. ii) 2 tnarks for explaining what is n1eant by either quality control or quality assurance; 2 n1arks for saying vvhy it is i tuportant to Medic Supplies pic . Quality assurance is where quality standards are set and then applied

throughout the bu�ine�� . Everyone on the production line at Medic Supplies pic will be responsible for ensuring that there are no defects with the products . This is particu larly in1portant for this business because it supplies

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equiptncnt to hospitals and if there were any faults then a death could be caused , n1eaning the company would get a bad reputatipn resulting in lost sales. iii) 2 n1arks for explaining the process of stock control; 2 marks for explaining how it ensures that raw materials should always be available so that production can take place; 2 n1arks for being in the context of n1edical supplies . iv) 2 marks for definition of lean production. Up to 4 n1arks for explaining how it n1ight be introduced at the business .

b) i) 3 marks for stating the cost savings of using computers to take orders instead of employing people (for example, fewer people needed, less wages to pay out, ordering can be automated) ; 3 tnarks for explaining why these mean lower costs. ii) 2 marks for stating the possible effects on the number and types of jobs at the con1pany, 2 marks for explaining why these effects are worrying for the employees at Telesales Services Ltd. More on-line ordering will n1ean that fewer ernployees will be needed as this is done automatically . Fewer telephone orders will n1ean employees who work in this section will be made redundant as they will not be transferred to on-line ordering. This is why employees are worried about losing their jobs.

U N IT 24 Factors affecti ng location Sample questions and answers 3) Examiner's marks and conm1ents: 3 n1arks for

listing disadvantages (more than three were listed) and 1 mark for explaining the reason for high rent in city centres . The candidate needed to explain the other disadvantages for full n1arks . Total = 4/6 n1arks .

e Try th is a) i ) 3 marks for each of the three £1ctors (for

example, availability of labour, location of ports, availability and cost of land, goven1ment grants) ; 3 n1arks for explaining why these .

factors are lmpod:arit The cocoa is in1ported so being located near to a port will reduce the transport costs of the raw n1aterials. ii) l tnark for stating each of the appropriate factors (n1aximun1 3) ; for exan1ple, the

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market, costs of setting up a new factory, costs of running a factory in this overseas market, availability of suitable labour, governn1ent policy; 3 marks for explaining these factors ; 2 marks for applying the answer to chocolate manufacturing; 2 n1arks for nuking judgements as to which factors are the n1ost irnportant when making the decision. If particular skilled labour is needed and there is none available in the country then it will be expensive to en1ploy foreign skilled workers .

b) 2 marks for stating the disadvantages of businesses locating wherever they want to, without any consideration of the local population or environment; 4 marks for explaining the reasons. For example, causing traffic congestion fron1 delivery lorries ; destroying areas with wildlife and natural beauty; the local population nuy not be happy about factories being built near their houses; causing pollution .

c) 2 marks for stating whether location is important to this business ; 4 marks for justifying this answer. Points nuy include : selling over the internet n1eans that customers do not need to go to a particular place to see the products so the business does not need a shop for custotners to visit ; orders are sent by post and therefore it is useful to have access to postal services nearby; the internet allows the business to locate anywhere in the world, not necessarily in the same country as the custon1ers ; orders can be placed over the internet, so the business is not reliant on the post for orders to be sent, which saves time between orders being placed and the orders being received by the business .

U N IT 2 5 B u s i n ess i n the i nternation a l com m u n ity Key definitions The 'exa1nples' questions are based on your own country - ask your teacher to check your answers.

Sample questions and answers d) ii) Examiner's marks and conlffients: The

student has understood the impact on exporters of an appreciation and has stated that this could reduce profits fro1n exporting. Total = 4/4 nurks .

• Try this

a) 1 n1ark for indentifying each reason and 1 mark for a brief explanation of each one. To obtain raw materials - these 1night not be available in the 'ho1ne' country; to produce more cheaply - labour costs could be lower in another country; to avoid tarifFs - by producing goods in another country, in1port tariffs will no longer have to be paid for imports into that country.

b) 1 mark for each correct point. Language problen1s ; different laws (for exan1ple , consumer protection) ; different customer tastes; con1n1unication problerns with head office.

c) Up to 2 marks for benefits and up to 2 nurks for drawbacks; up to 4 n1arks for discussion and judgement. Benefits : more jobs, export earnings, increased output, increased tax revenues. Drawbacks : jobs lost at existing con1petitors , possible environn1ental dan1age ; possible exploitation of labour; possible excessive exploitation of natural resources ; profits sent back to 'home' country.

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accounts 27 , 30, 46

advertising 79

Articles of Association 1 0

a�e� 27 , 28, 30, 36, 37

balance of payments 1 4

balance sheet 28, 30

bankruptcy 30

benefits 1 9 , 2 1 , 53

bonuses 52-3

bra nds 72

break-even point 23, 26

budgets 23, 26 , 64

business, types 6, 64, 9 1 , 93

business plans 37

capital 1 , 27 , 28, 3(> , 37

cash flow 32, 34, 3 5 , 46

chains of command 4 1

char� 23 , 7 0 , 7 1

collective bargaining 60

communication 49 , 50, 5 1

consumer protection laws 1 5

contracts o f employment 1 5

contribution 23

co-operatives 1 0 corporations 1 0, 1 2, 95, 97

cost benefit an alysis 1 9 , 2 1

costs 1 , 1 9, 2 1 , 23 , 24, 26, 27

credit 30, 37

currency 1 7 , 95

customer service 79

debentures 36

deb� 27 , 28, 30, 32, 37

decentralisation 42

decision-making 1 5 , 45

de-industrialisation 5

depreciation 27

discrimin ation 1 5

dismissal 57, 60

distribution 83, 85

diversification 5

dividends 27, 36

economic growth 6, 1 4, 17

economic problem 1, 3

economic unions 95

economy, types of 6

employer assoc iations 60

• 1 10

Index

exchange rates 1 4, 1 5 , 1 7 , 95

expenditure 37

exports 1 4, 1 7 , 95

feedback 49, 50, 5 1

finance 34, 36, 37 , 39

forecasts 23 , 26, 32, 34

franchises 1 0

globalisation 95

graphs 70, 7 1

Gross Domestic Product (GDP) 1 4

hierarchies, levels o f 4 1

hire purchase 3 7

imports 1 4, 1 5 , 95

income 1 4, 17: see also wages

industrial action 6 1 , 62

inflation 1 4, 1 7

integration 5 , 8

job satisfaction 53, 5 5

leasing 3 7

liabilities 27 , 2 8 , 3 0

limited companies 8 , 1 0, 1 2, 3 9

limited liability 1 0

liquidity 27 , 30, 32

loans 28, 32, 34, 36, 39

location 9 1 , 93

managers 4 1 , 43, 45-6, 47, 53

market research 6 7 , 69

marketing mix 64, 66, 72, 74, 7 6, 79,

83

Memorandum of Association 1 0

monopolies 1 5

motivation theories 52

multinational corporations 95, 97

national minimum wage 1 5

overdrafts 32, 36, 39

overheads 23, 27

packaging 72, 74

partnerships 1 0 , 1 2

personal selling 7 9 , 8 1

pressure gropps 1 9

price skimming 7(> , 7 8

pricing strategies 76, 78

private sector 6, 8 , 1 0, 12

privatisation 6

product life cycle 72, 7 4

production 5 , 87 , 89

productivity 87, 89

profi� 8, 27 , 28 , 30, 35, 36, 53

promotion 79, 8 1

public corporations 1 0, 1 2

public relations 79

public sector 6, 8 , 1 0 , 1 2

quality control 88, 89

quotas 1 5 , 95

ratios, types of 27, 30

recession 1 4

recruitment process 56, 58

redundancy 57, 60

retained profit 27, 36

retrenchment 57

revenue 23 , 27 , 30

salaries 53

sales turnover 27 , 28

scale, (dis) economies of 24, 26

shareholders 3, 1 0, 27 , 28, 39

shares 28, 36, 39

sole traders 10, 1 2

spans o f control 4 1 , 43

stakeholders 1 , 3

start-up finance 34, 37

stock control 87

supply and demand 76, 78

taxes and tariffs 1 5 , 27 , 9 5

technology, changes in 1 9 , 2 1 , 89

trade cycle 1 4

training 57, 58

transportation 83, 85

unemployment 1 4 , 2 1

unions 60, 6 1 , 62

value added 1 , 3, 87, 89

wages 52, 54, 55

worker participation 6 1 , 62

50791149 igcse study guide for business studies

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